Accounting Concepts Test Quiz! Trivia

Bank overdraft is not an asset but a liability. It represents the amount of money that a bank allows an account holder to withdraw in excess of the available balance. Since it is a debt owed by the account holder to the bank, it is classified as a liability on the balance sheet.

The government is not considered an internal user of accounting information because it is an external entity that regulates and monitors the activities of businesses. Internal users, on the other hand, are individuals or groups within the organization who use accounting information for decision-making and planning purposes, such as owners, employees, and management.

The assumption of going concern is based on the belief that a business will continue to operate in the foreseeable future. This assumption is important because it allows the financial statements to be prepared on the basis that the business will not be liquidated or forced to cease operations. It assumes that the business will continue to generate revenue, meet its financial obligations, and operate in the normal course of business. This assumption is crucial for accurate financial reporting and decision-making by stakeholders.

The correct answer is "Revenue-expense" because income is typically calculated by subtracting expenses from revenue. This calculation allows for determining the net profit or loss of a business or individual. By subtracting expenses from revenue, it provides a clearer picture of the actual income generated after deducting all necessary costs.

A creditor is a person or entity to whom a company owes money or has a financial obligation. They are considered a current liability because the debt or obligation is expected to be settled within a short period, usually within one year. In contrast, debtors owe money to the company and are considered an asset. Advertisement and debentures are not current liabilities as they do not represent a financial obligation or debt owed by the company.

Debentures are not short term liabilities, but rather long term liabilities. Debentures are a type of loan taken by a company from the public, where the company promises to repay the loan amount along with interest at a specified future date. These loans typically have a maturity period of more than one year, making them long term liabilities for the company. Therefore, the correct answer is False.

Accounting and bookkeeping are closely related but distinct processes. Bookkeeping involves recording financial transactions, while accounting involves analyzing, interpreting, and summarizing those transactions to generate financial reports and make informed decisions. Therefore, it can be said that accounting begins when bookkeeping ends, as bookkeeping provides the data necessary for accounting processes to take place.

Capital is considered to be an internal liability because it represents the owner's investment in the business. It is the amount of money or assets that the owner contributes to the business to start or expand its operations. The owner has a claim on the capital and can withdraw it from the business if necessary. Therefore, capital is a liability to the business as it represents the amount owed to the owner.

The matching principle is a fundamental concept in accrual accounting. It ensures that expenses are not arbitrarily assigned to a period but are instead linked to the revenue they help generate. This provides a more accurate picture of a company's profitability and performance during a specific period.

The prudence principle is also known as the conservatism principle. This principle suggests that when there are uncertainties or doubts about the future outcomes, it is better to be cautious and record transactions and events in a way that understates assets, revenues, gains, and overstates liabilities, expenses, and losses. This approach ensures that financial statements are not overly optimistic and provides a more realistic view of the entity's financial position and performance. Therefore, the correct answer is the conservatism principle.