Take our basic accounting principles quiz to check out your knowledge of the accounting assumptions and concepts used in double entry bookkeeping.
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Assets are normally shown at cost price in the balance sheet, and the cost is the basis for all subsequent accounting for the asset.
Everything is recorded in terms of money. Items which cannot be recorded in terms of money are ignored and not included. It follows that the financial statements only give a partial picture of the state of a business.
Profit is the difference between revenue and expenses not cash received and paid. Expenses are matched to revenues, for example if rent has been set as a percentage of sales (a turnover rent), then the rent is accrued in the accounts is the same period as the sales and not when the rent is actually paid.
There are two sides to accounting, one represented by the assets and the other represented by the liabilities against them.
Accounting assumes the business will continue.
For accounting purposes the business is treated as a separate entity from the owner. The accounting records show transactions of the business not the owner.
Profit is earned (realized) at the time the goods or services are passed to the customer and the customer incurs liability for them.
Try Another Double Entry Bookkeeping Quiz
The accounting principles quiz is one of many of our online quizzes which can be used to test your knowledge of double entry bookkeeping, discover another at the links below.
- Quiz 32: Inventory – Lower of Cost or Market Rule
- Quiz 51: Assets Liabilities Equity Quiz
- Quiz 55: Capital or Revenue Expenditure Quiz
- Quiz 62: Costs Included in Inventory
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.