ACC101 – Fundamentals of accounting

Accounting standards, concepts, and principles

Application of concepts.  Identify what concepts, principles, or assumptions are observed or violated in
each situation.  

Full disclosure principle 1. The entity included a note in the financial statements that described a
pending lawsuit against the entity.
2. In the middle of the current year, the entity paid a certain amount to an
insurance company for a one-year comprehensive insurance coverage. 
The entity recorded the entire payment as an expense in the current year.
Accrual basis of 3.  At the end of the current reporting period, the entity received an order
accounting from a customer.  The merchandise will be shipped early next year.
Because the sale was made to a long-time customer and the invoice was
paid in the current year, the accountant recorded the sale in the current
year.
Separate entity concept 4.  The entity paid for the personal travel of the chief executive officer and
charged travel expenses.
5.  A multinational entity published a complete set of financial statements
at least once a year, regardless of whether the financial results were good
or bad.
6.  An entity reported inventory, property, plant and equipment at current
value at year-end.
Stable monetary unit 7.  An entity reported financial statements in nominal pesos that have
mixed rather than uniform amount of purchasing power.
Consistency 8.  Preparers of financial statements should not try to increase the
usefulness of the information to a few users to the detriment of others
who may have opposing interests.
Consistency 9.  Four different competent accountants independently agree on the
amount and method of reporting an economic event.
Historical cost concept 10.  A delivery truck worth P600,000 was acquired for a cost of only
P500,000.  The truck was recorded at P600,000 and an income of P100,000
was recognized.