Question

Which accounting principle relates to the following examples?

1) Matching principle
2) Conservatism principle
3) Revenue recognition principle
4) Cost principle

Answer 1

The matching principle relates to matching expenses with revenues, the conservatism principle emphasizes caution in financial reporting, the revenue recognition principle states when revenue should be recognized, and the cost principle records assets at their original cost.

Step-by-step explanation:

Among the accounting principles mentioned, the matching principle relates to the concept of matching expenses with revenues in the same accounting period. This principle states that expenses should be recognized in the same period as the related revenues. For example, if a company sells a product and recognizes the revenue in one month, the associated expenses, such as the cost of manufacturing or delivering the product, should also be recognized in the same month.

The conservatism principle relates to being cautious and conservative in financial reporting. It suggests that when there are uncertainties or risks involved, a company should record potential losses immediately but only record potential gains when they are certain. For example, if a company suspects that a customer might default on a payment, it should record the potential loss in the current period but not record potential gains until they are realized.

The revenue recognition principle states that revenue should be recognized when it is earned and realized or realizable. This means that revenue should be recognized when the product or service has been provided to the customer and the company can reasonably expect to be paid for it. For example, a company that sells a product on credit should recognize the revenue when the product is delivered to the customer, even if the customer has not yet paid.

The cost principle, also known as the historical cost principle, states that assets should be recorded at their original cost. This principle allows for the objective and verifiable measurement of assets. For example, if a company purchases a building, it should record the cost of the building at the price it paid for it, rather than at its current market value.

Answer 2

This business-related question addresses concepts of taxation, including the benefit principle of taxation, which relates taxes to the benefits received, and the ability-to-pay principle, suggesting taxes should be based on individuals' economic capability. It also explores the three types of taxes, with a focus on proportional tax, which is the same for all income levels.

Step-by-step explanation:

The subject of this question is Business, specifically focusing on principles related to taxation and accounting. The benefit principle of taxation is based on the idea that those who benefit directly from governmental services should pay taxes in proportion to the amount of benefit they receive. However, there are limitations to this principle, including difficulties in measuring the exact benefit that individuals or businesses derive from public services, and the fact that not all public goods and services provide direct or easily quantifiable benefits to taxpayers.

The ability-to-pay principle is another taxation concept that suggests taxes should be levied on an individual based on their capacity to pay. This principle takes into account the individual's or entity's income, wealth, and other economic circumstances, implying that those with greater financial resources should contribute more to the funding of public services.

There are three main types of taxes: progressive, proportional, and regressive. A proportional tax, also known as a flat tax, imposes the same tax rate on all taxpayers, regardless of income level, thereby taking the same proportion of income from all taxpayers.