Question

4. Give the assumption or principle that would have been violated if the following entries or information had not been given:

a. An Adjustment is made for payroll expense at the EFY even- though it had not been paid:

b. A company was required to revalue all of its assets liabilities and owners equities at the end of the accounting year because it was going to file for bankruptcy and go out of business within a year.

c. Changing the method of recognizing depreciation is not allowed from one accounting period to another.

d. An international corporation must record all of its foreign transactions in dollars for United States financial reporting purposes.

e. A company records a fixed asset for not only the invoice price but all of the costs that it takes to put that asset into use.

Answer 1

a. Matching is the principle that would be violated. According to the concept , the expenses have to be matched with revenue. This principle requires companies to use accrual basis of accounting.

b. Going concern concept is the concept that assumes a company to exist long enough to carry out its objectives and commitments and will not liquidate in the forseeable future.

c. Consistency principle requires accountants to be consistent from one accounting period to another in applying accounting principles

d.monitery unit assumption because it is assumed that the dollars purchasing power has not changed over time.