Accounting Help! Learning about the accounting principles....?

Question

Here are the violations:

1. Economic entity assumption

2. Going concern assumption

3. Monetary unit assumption

4. Time period assumption

5. Cost principle

6. Matching principle

7. Full disclosure principle

8. Revenue recognition principle

9. Materiality

10. Conservatism

For each of the situations below, list the assumption, principle, or constraint that has been violated, if any.

1. Zareena Corp. charges the entire premium on a 2-year insurance policy to the first year.

* can't be cost principle or going concern assumption because i have already used them

2. Depreciation is recorded in the accounts over the life of an asset. (Do not use the going concern assumption.)

*is it matching principle? it's the only one i haven't tried but, not sure why it would be...please explain

Answer 1

For no. 1, I will say time period assumption, as the corp expensed the unused portion on the 1st year, when the 2nd year should be put as prepaid expense (Asset).

For no. 2, It is indeed matching principle, as the cost of purchasing a fixed asset spread over the period in which it is expected to generate a revenue.

Answer 2

1 is time period and matching

2 matching is for the simple debit matching credits that you have learned about so many times. each period the depreciation is being recorded to show what the book value of the asset is. recording it all in one year would not be an honest reflection.

3 going concern has to do with the company's ability to continue doing business.  (just wanted to give you an idea of what it is since you used it for both)