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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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The valuation of a promise to receive cash in the future at present value on the financial statements of a company is valid because of the accounting concept of:

  1. a. entity
  2. b. materiality
  3. c. going concern
  4. d. neutrality

To determine

Identify the accounting concept that states “the valuation of' a promise to receive cash in the future at present value on the financial statements of a company”.

Explanation

Justification for the incorrect answer:

Option a:

Business is considered as an individual entity, as per the separate entity assumption, hence it indicates the business and personal record keeping should be maintained separately. Therefore, ‘Option a’ is an incorrect answer.

Option b:

The materiality accounting concept is a concept that focusses on all the financial items and figures which would significantly influence the investors and creditors. Therefore, ‘Option b’ is an incorrect answer.

Option d:

Neutrality representation is not biased, emphasized or manipulated as to achieve the predetermined result and they are not prepared with the purpose to influence the users of the information...

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