Accounting principles are the framework for GAAP. Having a basic understanding of these principles will help you learn accounting.
Referring back to these principles will help you understand how business transactions are recorded.
Below are various scenarios in which accounting transactions and business procedures are violating basic accounting principles.
You will analyze the scenarios and determine which principle is being violated. The principles options are presented below in alphabetical order.
Each principle should only be used once. Place your answer choice in the column next to the scenario. (1 point per scenario)
Scenario	Principles being violated
1. Sally's grandmother invested $50,000 in Sally's business. Grandma is furious because the business has been operating for two years and has yet to provide financial statements. Grandma wants to know how her investment is performing. (Do not use Full Disclosure)	periodocity
2. In December 2017, Ellis Landscaping accepted $20,000 for a landscaping project to be completed in January 2018. Ellis recognized the revenue and profit from this transaction in 2017.	Revenue Recognition Principle
3. ABC Co. experiences a fire in one of its manufacturing plants. The fire will reduce sales by $100,000. ABC Co. records a $100,000 loss on its income statement.
4. Rogers Manufacturing purchased land for a new plant site. Rogers discovered the land contained buried fuel tanks. Removing the tanks per EPA standards will result in significant costs to Rogers. Rogers does not provide this information in the financial statements.
5. Mesa Co. built a new machine from a combination of spare parts in the machine shop, labor from factory workers, and purchases of new parts. Mesa could not calculate the exact cost of the new machine; therefore, the Mesa accountant guessed at a cost of $61,000 without having any documentation to support it.
6. Andrew Co. purchased land in 1986 for $25,000. Wal-mart purchased the land right next to Andrew's land. Andrew's land skyrocketed in value to $200,000. Andrew Co. recognized this gain by increasing the value of the land on the balance sheet.
7. Jackson Co. has inventory which costed $20,000 when purchased. The cost to replace the inventory has since dropped to $15,000. Jackson has continued to carry the inventory at $20,000.
8. Esca Inc. had a $15,000 discrepancy between their inventory records and the actual physical count of inventory. Esca decided not to investigate the difference because $15,000 was an insignificant amount. Esca's net income for the year was $75,000.
9. Urban Inc. bought a two-year insurance policy in 2017. Urban charged all the premiums for the policy to Insurance Expense in 2017.
10. Jeremy uses company funds to buy a personal computer for his daughter to use for her school work. Jeremy charges Office Supplies Expense for the cost of the computer.
Principles
Business Entity Concept
Conservatism Principle
Full Disclosure Principle
Historical Cost Principle
Matching Principle
Materiality Concept
Monetary Unit Assumption
Objectivity Principle
Periodicity Assumption
Revenue Recognition Principle