ASPL2 Activity 1n2 Done
ASPL2 Activity 1n2 Done
ASPL2 Activity 1n2 Done
SCORE:
PROFESSOR: Ma’am Salve Dulong Cahilo BSAIS – 1A September 8, 2020
1. Whys is it that financial statement users need to at least have a basic knowledge of
accounting concepts?
The going concern assumption means that in the absence of evidence to the
contrary, the accounting entity is viewed as continuing in operation indefinitely. In other
words, the financial statements are normally prepared on the assumption that the entry
will continue in operation for the foreseeable future. The idea comes from the phrase that
business is “always going on”. This assumption is also called as continuity assumption.
It simply means that a company is financially stable enough to meet its obligations and
continue its business for the foreseeable future. If there is evidence that the entity would
experience large and persistent losses or that the entity’s operation are to be terminated,
the going concern assumption is abandoned.
Reliability simply means that the information is free from material error and bias
and can be depended upon by users to represent faithfully. Accordingly, it helps assure
users that information represents the economic phenomenon or transaction it purports to
represent. Faithful representation, substance over form, prudence, and neutrality
enhances the reliability of financial information.
To represent faithfully, it is necessary that the transactions and other events are
accounted for and presented in accordance with their substance and economic reality,
and not their legal form. The economic substance of transactions and events are usually
emphasized when economic substance differs from legal form.
Prudence is the desire to exercise care and caution when dealing with the
uncertainties in the measurement process such that assets or income are not overstated
and liabilities or expenses are not understated. In the simplest terms, it means “in case of
doubt, record any loss and do not record any gain.”
Comparability means the ability to bring together for the purpose of noting points
of likeness and difference. It enables users to identify and understand similarities and
differences among items.
The principle of consistency requires that the “accounting methods and practices
should be applied on a uniform basis from period to period.
Instruction: In the space provided before the statement, write TRUE if the statement is correct or
FALSE if the statement is incorrect.