Instructions

Identify when revenue should be recognized in each of the above situations.

E4-2

These accounting concepts were discussed in this and previous chapters.

• 1.Economic entity assumption.
• 2.Expense recognition principle.
• 3.Monetary unit assumption.
• 4.Periodicity assumption.
• 5.Historical cost principle.
• 6.Materiality.
• 7.Full disclosure principle.
• 8.Going concern assumption.
• 9.Revenue recognition principle.
• 10.Cost constraint.

Instructions

Identify by number the accounting concept that describes each situation below. Do not use a number more than once.

________(a)

Is the rationale for why plant assets are not reported at liquidation value. (Do not use the historical cost principle.)

________(b)

Indicates that personal and business recordkeeping should be separately maintained.

________(c)

Ensures that all relevant financial information is reported.

________(d)

Assumes that the dollar is the measuring stick used to report on financial performance.

________(e)

Requires that accounting standards be followed for all items of significant size.

________(f)

Separates financial information into time periods for reporting purposes.

________(g)

Requires recognition of expenses in the same period as related revenues.

________(h)

Indicates that fair value changes subsequent to purchase are not recorded in the accounts.