Question

Which of the following statements about generally accepted accounting principles is TRUE?

1) The use of the straight-line method of depreciation should be fully disclosed.
2) The conservatism principle calls for recognizing revenues as soon as possible but delaying the recognition of expenses until they are incurred.
3) The cost principle dictates that an expenditure for equipment be recorded as a fixed asset rather than as an expense.
4) The cost principle dictates that transactions be recorded on an accrual basis rather than on a cash basis.

Answer 1

The true statement about generally accepted accounting principles is that the cost principle dictates that an expenditure for equipment be recorded as a fixed asset rather than as an expense.

Step-by-step explanation:

Statement 1: The use of the straight-line method of depreciation should be fully disclosed.

Statement 2: The conservatism principle calls for recognizing revenues as soon as possible but delaying the recognition of expenses until they are incurred.

Statement 3: The cost principle dictates that an expenditure for equipment be recorded as a fixed asset rather than as an expense.

Statement 4: The cost principle dictates that transactions be recorded on an accrual basis rather than on a cash basis.

Out of the four statements, Statement 3 is true. The cost principle does dictate that an expenditure for equipment should be recorded as a fixed asset rather than as an expense. This principle ensures that assets are properly accounted for and aligns with the general practices in accounting.