Which principle or concept states that businesses should use the same accounting methods and procedures from period to period?
a. Disclosure
b. Conservatism
c. Consistency
d. Materiality
Accounting concepts and principles: Financial statements are prepared in accordance with the guidelines of “GAAP” (Generally Accepted Accounting principles). The main objective of GAAP is to protect the interest of the investors and ensure fair business practice.
To Find: The principle or concept states that businesses should use the same accounting methods and procedures from period to period.
Answer to Problem 1QC
Explanation of Solution
Explanation for correct answer:
Consistency principle states that the same accounting principle should be followed over a period of years. The accounting methods for valuation of assets, liabilities, and inventories should not be changed from period to period. There should be a consistency in the accounting method followed.
Explanation for incorrect answers:
- Option (a) is incorrect because disclosure principle ensures, all financial information relating to the company are recorded; hence all financial information is reported.
- Option (b) is incorrect because conservatism principle states that all uncertain financial expenses and losses but not uncertain future gains should be recorded to safeguard itself from any future financial difficulties. According to this convention, the anticipated losses in future are the losses for the company, but the anticipated gains are not considered profit for the company.
- Option (d) is incorrect because materiality constraint focuses, on recording financial transactions which have a significant impact on the financial statement; hence it requires that the accounting standards must be followed for all items of significant size.
Want to see more full solutions like this?
Chapter 6 Solutions
HORNGREN'S FINANCIAL & MANAGERIAL ACCO
- That a business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally, is known as which of the following? A. separate entity concept B. monetary measurement concept C. going concern assumption D. time period assumptionarrow_forwardWhich of the following statements is true? Under cash-basis accounting, revenues are recorded when a company satisfies its performance obligations and expenses are recorded when incurred. Accrual-basis accounting records both cash and noncash transactions when they occur. Generally accepted accounting principles require companies to use cash-basis accounting. The key elements of accrual-basis accounting are the revenue recognition principle, the expense recognition principle, and the historical cost principle.arrow_forwardThe standards, procedures, and principles companies must follow when preparing their financial statements are known as which of the following? A. Financial Accounting Standards Board (FASB) B. generally accepted accounting principles (GAAP) C. Securities and Exchange Commission (SEC) D. conceptual frameworkarrow_forward
- Which of the following terms is used when assuming a business will continue to operate in the foreseeable future? A. separate entity concept B. monetary measurement concept C. going concern assumption D. time period assumptionarrow_forwardWhich of the following is considered a constraint on useful information by Statement of Financial Accounting Concepts No. 8? a. benefits costs b. conservatism c. timeliness d. verifiabilityarrow_forwardEach of the following situations relates to a different company. A. For each of these independent situations, find the missing amounts. B. How would stakeholders view the financial performance of each company? Explain.arrow_forward
- Which is the only ratio required to be reported on the face of a companys financial statements? What are the two ways the ratio is required to be reported?arrow_forwardACCOUNTING PROCESS Match the following steps of the accounting process with their definitions. Analyzinga. Telling the results Recordingb. Looking at events that have taken place and thinking about how they affect the business Classifying Summarizingc. Deciding the importance of the various reports Reportingd. Aggregating many similar events to provide information that is easy to understand Interpretinge. Sorting and grouping like items together f. Entering financial information into the accounting systemarrow_forwardWhat is the accounting equation? List two examples of business transactions, and explain how the accounting equation would be impacted by these transactions.arrow_forward
- Match the correct term with its definition. A. Financial Accounting Standards Board FASB) i. used by the FASB, which is a set of concepts that guide financial reporting B. generally accepted accounting principles (GAAP) ii. independent, nonprofit organization that sets financial accounting and reporting standards for both public- and private-sector businesses that use generally accepted accounting principles (GAAP) here in the United States C. Securities and Exchange Commission SEC) iii. standards, procedures, and principles companies must follow when preparing their financial statements D. conceptual framework iv. assumes a business will continue to operate in the foreseeable future E. going concern assumption v. independent federal agency protecting the interests of investors, regulating stock markets, and ensuring companies adhere to GAAP requirements F. time period assumption vi. companies can present useful information in shorter time periods such as years, quarters, or monthsarrow_forwardAccording to Statement of Financial Accounting Concepts No. 8, to be relevant an earnings report is expected to have which of the following?arrow_forwardPURPOSE OF ACCOUNTING Describe the kind of information needed by the users listed. Owners (present and future) Managers Creditors (present and future) Government agenciesarrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College PubPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College