Questions: Identify the accounting principle or assumption that best reflects each situation. Situation Principle or Assumption 1. A company reports details behind financial statements that would impact users' decisions. 2. Financial statements reflect the assumption that the business continues operating. 3. A company records the expenses incurred to generate the revenues reported. Business entity assumption 4. Each business is accounted for separately from its owner or owners. Expense recognition (matching) principle 5. Revenue is recorded when products and services are delivered. Full disclosure principle 6. Information is based on actual costs incurred in transactions. Going-concern assumption

Identify the accounting principle or assumption that best reflects each situation. Situation Principle or Assumption 1. A company reports details behind financial statements that would impact users' decisions. 2. Financial statements reflect the assumption that the business continues operating. 3. A company records the expenses incurred to generate the revenues reported. Business entity assumption 4. Each business is accounted for separately from its owner or owners. Expense recognition (matching) principle 5. Revenue is recorded when products and services are delivered. Full disclosure principle 6. Information is based on actual costs incurred in transactions. Going-concern assumption
Transcript text: Identify the accounting principle or assumption that best reflects each situation. \begin{tabular}{|l|l|} \hline \multicolumn{1}{|c|}{ Situation } & \multicolumn{1}{c|}{ Principlo or Assumption } \\ \hline 1. A company reports detals behind financial statements that would impact users' decisions. & \\ \hline 2. Financial statements reflect the assumption that the business continues operating. & \\ \hline 3. A company records the expenses incurred to generate the revenues reported. & Business entity assumption \\ \hline 4. Each business is accounted for separately from its owner or owners. & \begin{tabular}{l} Expense recognition (matching) \\ principle \end{tabular} \\ \hline 5. Revenue is recorded when products and services are delivered. & Full disclosure principle \\ \hline 6. Information is based on actual costs incurred in transactions. & Going-concern assumption \\ \hline \end{tabular}
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Solution

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Answer

The answer is as follows:

Explanation
Situation 1: A company reports details behind financial statements that would impact users' decisions.

This situation reflects the Full Disclosure Principle. This principle requires that all information that could affect users' understanding and decision-making should be included in the financial statements.

Situation 2: Financial statements reflect the assumption that the business continues operating.

This situation reflects the Going-Concern Assumption. This assumption presumes that the business will continue to operate in the foreseeable future and not liquidate or be forced out of business.

Situation 3: A company records the expenses incurred to generate the revenues reported.

This situation reflects the Expense Recognition (Matching) Principle. This principle states that expenses should be recorded in the same period as the revenues they help to generate.

Situation 4: Each business is accounted for separately from its owner or owners.

This situation reflects the Business Entity Assumption. This assumption means that the business is treated as a separate entity from its owners for accounting purposes.

Situation 5: Revenue is recorded when products and services are delivered.

This situation reflects the Revenue Recognition Principle. This principle states that revenue should be recognized when it is earned, which is typically when goods or services are delivered to the customer.

Situation 6: Information is based on actual costs incurred in transactions.

This situation reflects the Historical Cost Principle. This principle states that transactions should be recorded at their original cost, as this cost is verifiable and reliable.

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