Accounting Principles (Copy)
Topic 7.1: Accounting Principles – Quiz
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. What does the matching principle state?
A. Profits should match expenses
B. Revenues must be recorded only when cash is received
C. Expenses should be recorded in the same period as the revenue they help to earn
D. Only matching items can be offset
2. Which principle assumes that the business will continue its operations into the foreseeable future?
A. Consistency
B. Prudence
C. Going concern
D. Realisation
3. Which principle says that the business and owner are separate entities?
A. Duality
B. Matching
C. Business entity
D. Realisation
4. What is the main purpose of the consistency principle?
A. To ensure different methods are used every year
B. To allow any method of valuation
C. To use the same methods for accounting treatment each period
D. To match income with expenses
5. Under the prudence principle, which of the following is correct?
A. Always record profits as early as possible
B. Ignore liabilities until paid
C. Anticipate all losses and record them, but only recognize profits when realized
D. Overstate assets to be cautious
6. The duality principle underpins which core accounting rule?
A. Matching of revenues and expenses
B. Consistency in valuation
C. Double-entry accounting
D. Inventory valuation
7. Which principle ensures that only significant information is included in financial statements?
A. Realisation
B. Materiality
C. Money measurement
D. Historic cost
8. According to the money measurement principle, what is excluded from financial accounts?
A. Loans
B. Cash
C. Employee satisfaction
D. Debtors
9. What does the realisation principle refer to?
A. Recognizing profit when goods are received
B. Recording revenue only when it is certain or earned
C. Adjusting for unrealized gains
D. Recognizing profit when liabilities decrease
10. The principle of historic cost requires assets to be shown in accounts at:
A. Current market price
B. Insurance value
C. Cost at the time of purchase
D. Resale price
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Which principle explains why owner’s personal expenses are not recorded in business accounts?
A. Matching
B. Money measurement
C. Business entity
D. Consistency
12. Which principle emphasizes that financial statements should not be constantly changed in presentation or methods?
A. Consistency
B. Going concern
C. Prudence
D. Realisation
13. Recording wages owed at year end is an example of which principle?
A. Prudence
B. Realisation
C. Matching
D. Historic cost
14. Why would a business not bother to record a lost 10-rupee pen in the books?
A. It is not a business expense
B. It violates prudence
C. Due to materiality
D. It must be offset
15. When is revenue recognized according to the realisation principle?
A. When the order is placed
B. When payment is received
C. When goods are delivered or service is performed
D. When cost is incurred
16. If a company consistently uses the reducing balance method for depreciation, which principle does this follow?
A. Business entity
B. Matching
C. Consistency
D. Realisation
17. Which principle justifies recording a provision for doubtful debts?
A. Duality
B. Prudence
C. Matching
D. Money measurement
18. What principle is ignored if a business suddenly changes from FIFO to LIFO valuation method without reason?
A. Consistency
B. Realisation
C. Prudence
D. Materiality
19. Which principle ensures every transaction has equal and opposite effects in the accounts?
A. Matching
B. Prudence
C. Realisation
D. Duality
20. What is the primary limitation of the money measurement principle?
A. It includes cash transactions
B. It understates profit
C. It ignores qualitative information
D. It overstates assets
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
Answer key and explanations
Topic 7.1: Accounting Principles – Quiz
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. Correct Answer: C
Explanation: The matching principle requires that expenses be recorded in the same accounting period as the revenues they help to generate.
2. Correct Answer: C
Explanation: The going concern principle assumes the business will continue to operate indefinitely unless there is evidence otherwise.
3. Correct Answer: C
Explanation: Business entity principle treats the business and the owner as separate accounting entities.
4. Correct Answer: C
Explanation: The consistency principle ensures that the same accounting methods are applied consistently over time to allow comparability.
5. Correct Answer: C
Explanation: Prudence means not overestimating income or assets; all potential losses should be recorded when known, but profits are only recognized when certain.
6. Correct Answer: C
Explanation: The duality principle forms the basis of double-entry accounting: every debit has an equal credit.
7. Correct Answer: B
Explanation: Materiality ensures only significant data is included to avoid unnecessary details cluttering financial statements.
8. Correct Answer: C
Explanation: Only transactions that can be measured in monetary terms are recorded—non-quantifiable factors like morale are excluded.
9. Correct Answer: B
Explanation: Revenue is recognized (realised) when goods or services are delivered—not when cash is received or orders placed.
10. Correct Answer: C
Explanation: Historic cost requires that assets are recorded at their original cost, regardless of current market value.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Correct Answer: C
Explanation: Business entity principle separates owner’s personal expenses from business transactions.
12. Correct Answer: A
Explanation: Consistency means applying the same accounting methods from one period to the next unless a valid reason arises.
13. Correct Answer: C
Explanation: Wages owed but not paid are recorded in the same period they were incurred, following the matching principle.
14. Correct Answer: C
Explanation: Under materiality, small items like a 10-rupee pen are not recorded individually because they do not affect financial decisions.
15. Correct Answer: C
Explanation: Revenue is realised once the goods or services are delivered—not when payment is made.
16. Correct Answer: C
Explanation: Applying the same depreciation method yearly follows the consistency principle.
17. Correct Answer: B
Explanation: Prudence allows for anticipation of losses (e.g. bad debts) but not gains.
18. Correct Answer: A
Explanation: Changing valuation methods without explanation violates consistency.
19. Correct Answer: D
Explanation: Duality ensures every transaction has two equal sides: debit and credit.
20. Correct Answer: C
Explanation: The money measurement principle’s limitation is its inability to include qualitative or emotional factors like brand loyalty or staff satisfaction.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course