Accounting - theory questions help

[mckenna13245]

hey,

I need help answering these questions:

1) Explain one practical consequence of adopting the entity principle

2) Explain why the implementation of the going concern principle requires the adoption of the reporting period principle

3) Explain how the entity and reporting period principles ensure relevance in the accounting reports

4)Referring to one qualitative characteristic, explain why accountants must follow the historical cost principle

5) Explain how the recording system can ensure comparability of accounting reports

6) Suggest two ways of improving the understandability of accounting reports

7) State one reason why wages are not considered to be an asset

State one reason why the advertising for next year is not considered to be a liability

9) Explain why a capital contribution is not considered to be revenue

10) Explain why drawings are not considered to be an expense

Any help will be useful
thanks

[DoctorTwo]

I'm not going to go into fully detailed answers for most questions, because there are so many questions
6) Using graphs and simplifying the jargon that is used in reports.
7) An asset is a resource controlled by the entity as a result of past events from which future economic benefits are expected to flow to the entity. Wages are not a resource and they do not bring about a future economic benefit. An expense is an outflow or consumption of economic benefits in the form of a decrease in assets or increase in liabilities, which decreases owners equity. except drawing by the owner. Wages fulfil this because it is a decrease in an asset, usually cash at bank, it decreases owners equity and is not a drawing by the owner. (That is a messy answer but I think the answer is made clear.)
8 ) The definition of a liability is a present obligation of the entity, as a result of past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Advertising for next year is not a liability simply because it is not a present obligation of the entity. I'm not sure if you're in year 11 or 12, but mentioning that 'if advertising were paid in advance, it would become a prepaid expense', will enhance your response.
9) The definition of revenue (which you should include at the beginning of this repsonse) explicitly excludes capital contribution from the definition. The reasoning is that a capital contribution fulfils every aspect of a revenue, but is not an operating activity (if you've done year 11 accounting, you should know this, if not, this is covered when you learn cash flow statements), it is instead a financing activity that does not have relevance to the day-to-day operations of the business.Simply, it does not have relevance to the business' operations and is instead a transaction between the owner and their business.
10) The definition of expense (which you should, again, include at the beginning of this response) explicitly excludes drawings from the definition. The reasoning is that a drawing fulfils every aspect of an expense, but it is not an operating activity, it is instead a financing activity that does not have relevance to the day-to-day operations of the business. Simply, it does not have relevance to the business' operations and is instead a transaction between the owner and their business.

I honestly struggled to answer questions 1-5, so if anybody knows the answers, they would be appreciated. Thanks.

[dan0038]

hey,

I need help answering these questions:

1) Explain one practical consequence of adopting the entity principle

2) Explain why the implementation of the going concern principle requires the adoption of the reporting period principle

3) Explain how the entity and reporting period principles ensure relevance in the accounting reports

4)Referring to one qualitative characteristic, explain why accountants must follow the historical cost principle

5) Explain how the recording system can ensure comparability of accounting reports

6) Suggest two ways of improving the understandability of accounting reports

7) State one reason why wages are not considered to be an asset

State one reason why the advertising for next year is not considered to be a liability

9) Explain why a capital contribution is not considered to be revenue

10) Explain why drawings are not considered to be an expense

Any help will be useful
thanks

Ok personally i think doctortwo did an ok job at answering these questions but can be dictated as probably a current year 12 student that accelled in yr 11 accounting and has gone ahead in the course work. Personally i think there couldve been better explainations but doctortwo has stated that the answers stated weren't in detail. So here are mine:
1. The entity principle mainly comes up in the discussion of contribution of non current assets. So when the owner contributes let say a vehicle to the business, the entity principle with conflict with the valuing of the vehicle as the vehicle is to be valued at an agreed value instead of its purchase price due to it being a cost to the business. (This leads to the use of estimates for the agreed value thereby undermining reliability+bias) <include this if more than 2 marks 0.0
2. This question can get really contradictive so ill try and answer it in a simple manner coz i cant even answer this question correctly most of the times:
the going concern princple is basically stating how the business is continuous yada yada yada and reports are based off this statement. the reporting period principle states the seperation of the business' life into different periods to allow for reports to be prepped. The creation of reporting periods allows for the business to prepare reports not only for this particular reporting period but prep. budgeted reports for future rp as to plan ahead its activities and its inflows and outflows. budgeting hence links to the going concern principle as preparation of reports for future references assumes the business will continue till the next rp (probably dont use the word link here... budgeting is a concept taught in unit 4 of accounting so either i dont know why this question is asked at the beginning of unit 3 or i have completely butchered the answer to this question but ill let u deduce what u think is rite or wrong)
3. Entity is undertaken in the balance sheet as only A, L, O of the business (acc elements) are recorded upholding relevance (vague statement but can be undestood through context. also the textbook can probs answer this question). Rp is upheld due to only revs and exps in this current rp being recorded in the inc statement.
4. Historical cost allows for the og purchase price of an item to be used and shud be verified by a source document upholding reliability. lnik to bias and free of error statements.
5. Records are normally formatted using the same accounting methods every reporting period (can link to undestandability here due to the use of formatting but dont have to depending on marks allocated) so they are comparable overtime.

hope i answered the rest. Got kind of lazy at the end coz i had to remember accounting from last year... havent touched ever since the exam.