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Two Part Quiz

Match these six accounting principles on the left with their with the definitions on the right.
Choose the correct response from the drop-down list.  


The separate-entity or accounting entity assumption

a. All transactions and other items to be accounted for must be in a single monetary unit (currency).

The continuity or going-concern assumption 

b. An enterprise is an accounting unit separate from its owners and creditors.
3. The unit-of-measure assumption c. Financial data must be reported for particular (short) periods, which makes accrual and deferral necessary.

The time-period or accounting period assumption

d. Revenue is realized at the moment when goods are sold (or change hands) or when services are rendered.

The historical cost principle 

e. The business will continue indefinitely into the future.

The revenue or realization principle


f. The initial price paid for the acquisition of assets is the one that is recorded in accounts.

To which principles do these sentences refer? (see definitions from PART ONE)
Type in the correct answer.

1. This accords with a company's legal status and an artificial person.
2. This implies that the current market value of fixed assets is irrelevant, as they are not for sale.
3. This makes it unnecessary to estimate the current market values every year.
4. This means that each company has its own fiscal year. (UK: financial year)
5. This requires multinational companies to convert their consolidated statements into a single currency.
6. This is why balance sheets often contain an entry for debtors: goods that have been sold, but are not yet paid for.