Asked by Mike Tyson Bing Bong on Jul 05, 2024
Verified
You are reviewing the accounting records of Buddy's Foreign Automotive,owned by a single stockholder,Bruce Jones.You have uncovered the following situations.List the appropriate accounting principle related to each independent scenario and suggest a correct action for each.
1.In August,a check for $500 was written to Community Sports.This amount represents soccer camp for his daughter Cassie.
2.Bruce plans a Going Out of Business Sale for June,since he will be closing the business for a month-long vacation in July.He plans to reopen August 1 and will continue operating Buddy's Foreign Automotive indefinitely.
3.Buddy received a shipment of tools from Ontario,Canada.The invoice was stated in Canadian dollars.
4.Sandy Lane paid $1,500 for a major repair services.The amount was recorded as revenue.The parts for the repair must be ordered from overseas and the service won't be complete until the following month.
Accounting Principle
Guiding rules and standards that form the basis of financial accounting practices, ensuring consistency, reliability, and comparability of financial statements.
Canadian Dollars
The official currency of Canada, used in financial transactions within the country.
- Acquire knowledge of the core principles of accounting, focusing on the going concern assumption along with the business entity assumption.
- Identify the differences between liabilities and equity and recognize their significance in relation to the accounting equation.
Verified Answer
OA
Oluwademilade AdeduroJul 12, 2024
Final Answer :
1.Business entity assumption.Buddy should refund the $500 to the business or record it as a dividend.In the future,he should use a personal check to pay for soccer camp.
2.Going-concern assumption.Buddy's Foreign Automotive is not going out of business.The business is just closing for vacation.He could hold an appropriate sale to generate extra business before going on vacation.
3.Monetary unit assumption.The invoice should be restated in U.S.dollars for accounting purposes.
4.Revenue recognition principle.Since the service has not been completed,revenue should not be recognized.The $1,500 should be placed in an account such as Deposits Received from Customers (a type of unearned revenue)until the service is completed.
2.Going-concern assumption.Buddy's Foreign Automotive is not going out of business.The business is just closing for vacation.He could hold an appropriate sale to generate extra business before going on vacation.
3.Monetary unit assumption.The invoice should be restated in U.S.dollars for accounting purposes.
4.Revenue recognition principle.Since the service has not been completed,revenue should not be recognized.The $1,500 should be placed in an account such as Deposits Received from Customers (a type of unearned revenue)until the service is completed.
Learning Objectives
- Acquire knowledge of the core principles of accounting, focusing on the going concern assumption along with the business entity assumption.
- Identify the differences between liabilities and equity and recognize their significance in relation to the accounting equation.