Question

Match the accounting terminology to the definitions.

1. Conservatism

2. Materiality concept

3. Disclosure principle

4. Consistency principle

a. A business should report the least favorable figures in the financial statements when two or more possible options are presented.

b. A business’s financial statements must report enough information for outsiders to make knowledgeable decisions about the company.

c. A business should use the same accounting methods and procedures from period to period.

d. A company must perform strictly proper accounting only for items that are significant to the business’s financial situation.

Short answer

1. a

2. d

3. b

4. c

Step-by-step solution

1. Conservatism

The conservatism principle is based on the practice of anticipating and making arrangements for future loss and avoiding future benefits. This is done to prepare the financial statements in a realistic way and to exclude any benefit of the doubt.

Based on this fact, the correct statement for this terminology is – Statement (a)

2. Materiality concept

The materiality concept states that only those facts and figures should be stated in the statements that can be presented in the material form. Thus, any event that has no material amount cannot be reported in the financial statement. The event must also have a significant effect on the financial statement.

Based on this fact, the correct statement for this terminology is – Statement (d)

3. Disclosure principle

Disclosure principle is a guide to reveal important and relevant information to the public to make informed and relevant decisions. As per this principle, any information that can impact the interest of the other must be revealed.

Based on this fact, the correct statement for this terminology is – Statement (b)

Consistency principle

The consistency principle states that the procedures, methods, and assumptions adopted to prepare the financial statement must not be changed from time to time. For any method or practice that is adopted, there must be a long-term commitment to that practice.

Based on this fact, the correct statement for this terminology is – Statement (c)