Match each financial reporting practice described on the left with its corresponding governing accounting concept or convention on the right.
- Recording non-current assets at their acquisition price regardless of current market values.Historical Cost Concept
- Recognizing revenues and expenses when incurred rather than when cash is paid or received.Accrual Concept
- Anticipating future potential losses while recognizing profits only when realized.Prudence Convention
- Treating the enterprise as a distinct unit separate from its owner for accounting purposes.Business Entity Concept
Answer
The correct pairings are: (1) Recording non-current assets at acquisition price matches Historical Cost Concept; (2) Recognizing revenues and expenses when incurred matches Accrual Concept; (3) Anticipating future potential losses while recognizing profits only when realized matches Prudence Convention; (4) Treating the enterprise as a distinct unit separate from its owner matches Business Entity Concept.
Each statement directly articulates the primary definition of its paired concept: recording assets at purchase price follows the Historical Cost Concept; recognizing income/expenses in the period they occur follows the Accrual Concept; anticipating losses while delaying profit recognition until earned follows the Prudence Convention; and isolating the firm's finances from its owner follows the Business Entity Concept.
Step-by-Step Solution
Key Concept
Accounting Concepts and Conventions