Match each accounting concept on the left with its correct description on the right.

Business Entity ConceptTreats the business as a financial unit separate and distinct from its owner.
Going Concern ConceptAssumes the business enterprise will continue operating for the foreseeable future.
Accrual ConceptRequires revenues and expenses to be recognized when earned or incurred, regardless of cash flow.

Answer

Business Entity Concept matches with 'Treats the business as a financial unit separate and distinct from its owner.', Going Concern Concept matches with 'Assumes the business enterprise will continue operating for the foreseeable future.', and Accrual Concept matches with 'Requires revenues and expenses to be recognized when earned or incurred, regardless of cash flow.'

Each concept is matched correctly according to standard accounting principles: the Business Entity concept isolates the business from its owner, the Going Concern concept presumes ongoing operations into the future, and the Accrual concept records financial events upon occurrence rather than cash settlement.

Step-by-Step Solution

Identify the core definition of the Business Entity Concept.

Recognize that it separates the owner's personal accounts from the business accounts.

This establishes financial independence of the entity for accounting purposes.

Identify the core definition of the Going Concern Concept.

Recognize that it assumes indefinite operational life for the business.

This justifies valuing fixed assets at historical cost rather than net realizable liquidation value.

Identify the core definition of the Accrual Concept.

Recognize that transactions are recorded in the period they occur regardless of cash receipt/payment.

This ensures profits reflect true operational performance over a specific financial period.

Key Concept

Fundamental Accounting Concepts and Conventions

Estimated Time:45s

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