You are reviewing the accounting records of Buddy's Foreign Automotive, owned by Bruce Jones. You have uncovered the following situations. List the appropriate accounting principle related to each independent scenario and suggest a correct action for each .1. In August, a check for $500 was written to Community Sports. This amount represents soccer camp for his daughter Cassie.2. Bruce plans a Going Out of Business Sale for June, since he will be closing the business for a month-long vacation in July. He plans to reopen August 1 and will continue operating Buddy's Foreign Automotive indefinitely.3. Buddy received a shipment of tools from Ontario, Canada. The invoice was stated in Canadian dollars.4. Sandy Lane paid $1,500 for a major repair services. The amount was recorded as revenue.
The parts for the repair must be ordered from overseas and the service won't be complete until the following month.
What will be an ideal response?
1. Business entity assumption. Buddy should refund the $500 to the business or record it as a withdrawal. In the future, he should use a personal check to pay for soccer camp.
2. Going-concern assumption. Buddy's Foreign Automotive is not going out of business. The business is just closing for vacation. He could hold an appropriate sale to generate extra business before going on vacation.
3. Monetary unit assumption. The invoice should be restated in U.S. dollars for accounting purposes.
4. Revenue recognition principle. Since the service has not been completed, revenue should not be recognized. The $1,500 should be placed in an account such as Deposits Received from Customers (a type of unearned revenue) until the service is completed.
You might also like to view...
Which of the following techniques was suggested by Freud to trace a person's motivations from the stated instrumental ones to the more terminal ones?
A) laddering B) word association C) role playing D) casting E) selective attention
We know that role reversal can be a useful tool for improving communication and the accurate understanding and appreciation of the other party's position in negotiation. But when is it useful?
What will be an ideal response?
Organizational climate is the relatively enduring quality of the internal environment of the organization as perceived by its members.
Answer the following statement true (T) or false (F)
Property insurance companies have more freedom in their investment activities than do life insurance companies
Indicate whether the statement is true or false