Accounting principles: Practice Questions

A business records its non-current assets at their original purchase price and does not update the values to reflect current market prices. Which accounting principle is being applied?

At the end of the financial year, a business has unpaid electricity bills amounting to \(\$450\). The accountant includes this amount in the income statement as an expense for the current year. Which accounting principle is the accountant applying?

A trader purchases a new stapler for \(\$2\) and expects it to last for five years. However, he decides to record the full cost as an expense in the current year rather than depreciating it over its useful life. Which accounting principle is he following?

A business owner uses the same method of depreciation for his motor vehicles every year to ensure that the financial results of different years can be compared. Which accounting principle is being applied?

Which accounting principle states that only information which can be expressed in monetary terms should be recorded in the accounting records?

Explain why the private residence of a shop owner is not included as an asset in the shop’s Statement of Financial Position, and name the accounting principle being applied.

(a) Define the business entity principle and explain why it is essential for a sole trader to maintain separate records for personal and business transactions.

(b) A business owner recently attended a high-level training course that significantly improved his management skills. He wishes to record the value of this training as an asset in the statement of financial position. Identify the accounting principle that prevents this and explain why.