14.4.2. Key Concepts

Try these first

1. 1.

   What does the Going Concern principle assume?

   Hint

   Think about how businesses plan for the future.

2. 2.

   Explain the Accrual Concept in your own words.

   Hint

   Consider when revenues and expenses are recognized.

3. 3.

   What is the assumption of the Going Concern principle?

   • The company will be liquidated
   • The company will continue to operate
   • The company will cease operations immediately

   Hint

   Consider what businesses aim for in terms of future operations.

4. 4.

   T/F: The Accrual Concept records transactions when cash is exchanged.

   • True
   • False

   Hint

   Think about the timing of recognizing transactions.

5. 5.

   A company has reported profits by recognizing sales that haven't been collected in cash yet. Discuss the implications of this practice in light of the Accrual Concept and Prudence principle.

   Hint

   Consider how this would affect future financial statements.

6. 6.

   Analyze a situation where a company changes its accounting method for expense recognition mid-year. What challenges does this present for consistency, and how should the company address them?

   Hint

   Think about transparency in financial reporting and its significance.