ACCOUNTING
E7-3 Presented below is the assumptions, principles, and constraints discussed in this chapter.
1. Economic entity assumption 6. Matching principle
2. Going concern assumption 7. Full disclosure principle
3. Monetary unit assumption 8. Revenue recognition principle
4. Time period assumption 9. Materiality
5. Cost principle 10. Conservatism
Instructions: Identify by number the accounting assumption, principle, or constraint above that describes each situation below. Do not use a number more than once.
(a) Is the rationale for why plant assets are not reported at liquidation value. (Do not use historical cost principle.)
(b) Indicates that personal and business record-keeping should be separately maintained.
(c) Ensures that all relevant financial information is reported.
(d) Assumes that the dollar is the “measuring stick” used to report on financial performance.
(e) Requires that the operational guidelines be followed for all significant items.
(f) Separates financial information into time periods for reporting purpose.
(g) Requires recognition of expenses in the same period as related revenues.
(h) Indicates that market value changes subsequent to purchase are not recorded in the accounts.
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