Commercial Applications
Regarding fundamental accounting principles, which statement accurately reflects the "Entity Concept"?
(1) The Entity Concept emphasizes that a business's financial activities should be reported separately from the personal finances of its owners.
(2) The Entity Concept dictates that all transactions should be recorded using a single currency.
(3) The Entity Concept suggests that the money withdrawn by the proprietor from the firm for his personal use should be treated as drawings.
(4) The Entity Concept focuses on matching revenues and expenses to determine net income.
- Only 1
- 2 & 3
- Only 4
- 1 and 3
Answer
1 and 3
Reason — Statements 1 and 3 correctly describe the Business Entity Concept — the business is treated as a unit separate and distinct from its owner, and money withdrawn by the proprietor for personal use is treated as drawings. Statement 2 refers to the Money Measurement Concept, while statement 4 describes the Matching Principle.
Related Questions
Which of the following statement(s) is/are correct?
Statement 1: The Going Concern Concept assumes that a business will not cease operations in the near future.
Statement 2: The Business Entity Concept implies that the business and its owner are separate entities, and the owner's personal transactions should be recorded in the business books.
- Only Statement 1 is correct
- Only Statement 2 is correct
- Both Statements 1 and 2 are correct
- Both Statements 1 and 2 are false
Accounting principles are necessary due to which of the following reasons?
- To identify and classify economic transactions for meaningful presentation.
- To ensure uniformity in accounting records.
- These principles represent a scientific approach to financial statements.
- All of these
Ms. Mira is auditing a company's financial statements and notices that no footnotes have been provided for significant liabilities. Which accounting principle is most likely being violated?
- Matching Principle
- Revenue Recognition Principle
- Principle of Full Disclosure
- Conservatism Principle
On the basis of this concept, only those transactions are recorded in accounts which can be expressed in terms of money.
- Money measurement concept
- Accounting period concept
- Business entity concept
- Realisation concept