Test: Principles of Accounting- 1 - B Com MCQ

The matching concept, also known as the accruals concept, states that revenue should be properly matched with the expenses of a given accounting period. This means that the expenses incurred to generate revenue should be recognized in the same period as the revenue is recognized. By matching revenues and expenses, the financial statements provide a more accurate representation of the company's financial performance.
 

The convention of conservatism, also known as the prudence concept, states that profits should only be recognized when they are realized, meaning when they are actually earned. On the other hand, losses should be recognized when they are anticipated or incurred, even if they are not yet realized. This conservative approach ensures that financial statements present a more cautious and realistic view of the company's financial performance and position. 

The accounting principle of cost states that all assets of a firm are entered into the books of account at their purchase price, which includes the cost of acquisition, transportation, and installation. This principle emphasizes the historical cost of assets rather than their current market value. By recording assets at their purchase price, the cost principle ensures that the financial statements provide a reliable and objective representation of the company's financial position.

The convention of disclosure requires that all material and relevant facts concerning the financial position and results of operations of a business should be communicated in the financial statements. This convention ensures that users of the financial statements have access to all significant information that may impact their evaluation and decision-making. Material facts are those that could influence the economic decisions of users, and it is important to provide transparency and full disclosure in financial reporting. 

The going concern concept is an accounting concept that assumes a business will continue to operate indefinitely, unless there is evidence to the contrary. This concept is based on the belief that a company will not be winding up or selling its assets in the near future and will be able to meet its obligations. It justifies the preparation of financial statements as a continuous series of statements, reflecting the financial position and performance of the business over time. 

The accounting convention of consistency states that accounting practices should remain unchanged from one period to another. This means that working rules and methods once chosen should not be changed arbitrarily without notice of the effect of the change. For example, if a company values its stock in a certain manner one year, it should value it in the same manner in subsequent years. This convention ensures that accounting information is presented consistently over time, allowing for meaningful comparisons of financial performance.

The profit and loss statement, also known as the income statement, is the financial report that provides a summary of a company's performance by reviewing revenues, costs, and expenses during a specific period. It shows the company's ability to generate profit or incur losses from its operating activities, giving insights into its financial health and profitability. 

The disclosure principle is an accounting principle that requires that all relevant information be disclosed in the financial statements. This principle ensures that users of the financial statements have access to all material and significant information that may impact their evaluation and decision-making. The disclosure of information can be made through footnotes, additional schedules, or supplementary reports.

The business entity concept is an accounting concept that assumes that the business and its owner are separate entities. This means that as far as accounting is concerned, the owner and the business are treated as two distinct entities. This concept helps accountants identify and record business transactions separately from personal transactions, ensuring that the financial statements accurately reflect the financial position and performance of the business. 

The money measurement concept is an accounting concept that assumes that all financial transactions will find a place in accounting as long as they can be expressed in monetary terms. This means that only those business activities that can be quantified and measured in monetary units will be recorded in the financial accounts. Transactions or events that cannot be expressed in monetary terms, no matter how significant, will not be included in the financial statements.