As a result of this principle, a company’s financial statements will include many disclosures and schedules in the notes to the financial statements. To make the topic of Accounting Principles even easier to understand, we created a collection of premium materials called AccountingCoach PRO. Our PRO users get lifetime access to our accounting principles cheat sheet, flashcards, quick test, and more. In accounting, decision-making is the process of choosing between two or more courses of action to achieve the desired outcome.

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More importantly, did you really know the answers, or did you have to guess at some of the questions? Ideally, you should be able to answer those accounting questions with ease. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.

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Try out these quiz questions and answers and check your financial knowledge. Accounting principles are the common rules and guidelines that companies need to follow while preparing and presenting financial statements. My Accounting Course  is a world-class educational resource leasing vs financing developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers. These rules or standards allow lenders, investors, and others to make comparisons between companies’ financial statements.

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• In this explanation we begin with brief descriptions of many of the underlying principles, assumptions, concepts, and qualities upon which the complex and detailed accounting standards are based.
• My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.
• After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.
• You will see how the accounting principles affect the balance sheet and income statement.

Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos. Except for certain marketable investment securities, typically an asset’s recorded cost will not be changed due to inflation or market fluctuations.

Share with classmates or export to Excel and your learning management system. Take your learning and productivity to the next level with our Premium Templates. After you have answered all 20 questions, click “Grade This Quick Test” at the bottom of the page to view your grade and receive feedback on your answers. Take self-paced courses to master the fundamentals of finance and connect with like-minded individuals. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Finance Strategists has an advertising relationship with some of the companies included on this website.

The economic entity assumption allows the accountant to keep the business transactions of a sole proprietorship separate from the sole proprietor’s personal transactions. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting. If you need a refresher course on this topic you can view our basic accounting concepts tutorial here. For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing.

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. The concept of materiality means an accounting principle can be ignored if the amount is insignificant. For instance, large companies usually have a policy of immediately expensing the cost of inexpensive equipment instead of depreciating it over its useful life of perhaps 5 years.

In other words, the company will be able to continue operating long enough to meet its obligations and commitments. As a result, the accountant can continue to report most assets at their historical cost and can defer some costs to future periods. Some of the accounting principles in the Accounting Research Bulletins remain in effect today and are included in the Accounting Standards Codification. However, due to the complexities and sophistication of today’s global business activities and financing, GAAP has become more extensive and more detailed. For financial statements to be relevant they should be distributed as soon as possible after the end of the accounting period. If the revenues earned are a main activity of the business, they are considered to be operating revenues.

Revenues are to be recognized (reported) on a company’s income statement when they are earned. Therefore, a company will report some revenues on its income statement before a customer pays for the goods or services it has received. In the case of cash sales, revenues will be reported when customers pay for their merchandise. If customers pay in advance, the revenues will be recognized (reported) after the money was received. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching.

After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. An accounting guideline which allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments. In other words, the accountants believe that the company will not liquidate in the near future. This assumption also provides some justification for accountants to follow the cost principle. The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). This Accounting Test is designed to help you assess your knowledge of essential accounting principles and basic concepts.