Accounting concepts

1. State one reason why accounting rules are necessary.

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2. Explain the meaning of the term business entity.

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3. Explain how the principle of duality is carried out in recording the day-to-day

transactions of a business.

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4. No entry is made in the accounting records of Part Street Stories when a competitor

reduces his prices by 15%. Explain why.

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5. A customer orders goods on 2 Feb. The goods are delivered to the customer on 16

Feb. A cheque in full settlement is received from the customer on 28 Feb. State the

date on which the profit is regarded as realised. Give reason for your answer.

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6. State why a business should apply the principle of consistency.

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7. Explain what is meant by the principle of accruals.

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8. “If in doubt, understate profits and overstate losses”. State which accounting principle

is being described.

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9. State one situation when the principle of going concern is not applied.

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10. Explain why the principle of materiality may be applied to the purchase of an office

stapler.

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11. State two reasons why it is useful for the life of a business to be divided into

accounting periods of one year.

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12. State two ways in which information can be regarded as being relevant.

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13. State three ways in which information can be regarded as being reliable.

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14. Explain why it is necessary to know any changes in accounting policy when

comparing financial statements with those of a previous year.

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15. Explain the meaning of the term “understandability”

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