Violation of Accounting Principles

Question 1

The following is a list of users of accounting information:

  1. a) Managers
  2. b) Regulators
  3. c) Employees
  4. d) Shareholders
  5. e) Lenders
  6. f) Suppliers
  7. g) External auditors

 

Instructions

Identify the above users as internal (I) or external (E) using the following format:

_______(a) Managers

_______(b) Regulators

_______(c) External auditors

_______(d) Shareholders

_______(e) Lenders

_______(f) Suppliers

 

 

 

 

Question 2

Each of the following independent situations represents a violation of accounting principles:  circle the principle that is violated.

  1. It is now the end of 2021 and Stella Co. is preparing its annual financial statements. The company has been experiencing severe financial difficulties and management anticipates that the company will cease operations in 2022 but this is not disclosed in the financial statements.

Going Concern Assumption                        Reporting Entity concept

 

  1. Fritz Schmitz runs a small business. All receipts from the business are deposited into Fritz’s personal bank account and all Fritz’s expenses, both personal and business, are paid out of this same account. Fritz  makes no attempt to maintain separate records for the business.

Going Concern Assumption                        Reporting Entity concept

 

  1. Dean has a mining company that is very profitable. Over the past few years, Dean has been very good at maintaining his business records and books. However, Dean’s wife has recently been using the company account to pay for her personal expenses. She informed Dean that since he owns the company all the money earned will go to him anyway and therefore using the company account or their personal bank account makes no difference.

Going Concern Assumption                        Reporting Entity concept