E2-4 - Full disclosure principle(d Rationale why plant...

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E2-4 (Assumptions, Principles, and Constraints) Presented below are the assumptions, principles, and constraints used in this chapter. 1. Economic entity assumption 5. Historical cost principle 9. Materiality 2. Going concern assumption 6. Matching principle 10. Industry practices 3. Monetary unit assumption 7. Full disclosure principle 11. Conservatism 4. Periodicity assumption 8. Cost-benefit relationship Instructions Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a letter more than once. (a) Allocates expenses to revenues in the proper period. Matching principle (b) Indicates that market value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.) Historical cost principle (c) Ensures that all relevant financial information is reported.
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Unformatted text preview: Full disclosure principle (d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.) Going concern assumption (e) Anticipates all losses, but reports no gains. Conservatism (f) Indicates that personal and business record keeping should be separately maintained. Economic entity assumption (g) Separates financial information into time periods for reporting purposes. Periodicity assumption (h) Permits the use of market value valuation in certain specific situations. Industry practices (i) Requires that information significant enough to affect the decision of reasonably informed users should be disclosed. (Do not use full disclosure principle.) Materiality (j) Assumes that the dollar is the “measuring stick” used to report on financial performance. Monetary unit assumption...
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