Question

Identify which accounting principle or assumption best describes each of the following
A.) In December 2012, Chavez landscaping received a customer's order and cash prepayment to install sod at a new house that would not be ready installation until March 2013. Chavez should record the revenue from the customer order in March 2013, not in December 2012.

B.) If $51,000 cash is paid to buy land, the land is reported on the buyers balance sheet at $51,000

C.) Jo Keene owns both Sailing Passions and Dockside Supplies. In preparing financial statements for Dockside Supplies, Keene makes sure that the expense transactions of Sailing Passions are kept separate from Dockside's transactions and financial statements

Answer 1

Answer:

A) Accrual principle

B) Cost principle

C) Economic entity principle

Explanation:

Accrual principle: indicates that accounting transactions should be recorded in the accounting periods when they actually occur, rather than in the periods when there are cash flows associated with them.

Cost principle: according to this concept, a business should only record its assets, liabilities, and equity investments at their original purchase costs.  

Economic entity principle: implies that the transactions of a business should be kept separate from those of its owners and other businesses.