Principles of FinancialAccounting 2e (AGE)John J WildWinston KwokKen W ShawBarbara ChiappettaSolutions ManualProprietary and ConfidentialThis Manual is the property of McGraw-Hill Education (Asia) and protected by copyright laws. This Manual is provided only to authorized professors and instructors for use in preparing for the classes using the affiliated textbook. No other use or distribution of this Manual is permitted. This Manual may not be sold or distributed to or used by any student or other third party. No part of this Manual may be reproduced, displayed or distributed in any form or by any means, electronic or otherwise, without the prior written permission of McGraw-Hill Education (Asia).Chapter 3Adjusting Accounts and Preparing Financial StatementsDISCUSSION QUESTIONS1. The cash basis of accounting reports revenues when cash is received while theaccrual basis reports revenues when they are earned. The cash basis reports expenses when cash is paid while the accrual basis reports expenses when they are incurred and matched with revenues they generated.2. The accrual basis of accounting generally provides a better indication of companyperformance and financial condition than does the cash basis. Also, the accrual basis increases the comparability of financial statements from one period to the next. Thus, business decision makers generally prefer the accrual basis.3. Businesses that have major seasonal variations in sales are most likely to select thenatural business year as the fiscal year.4. A prepaid expense is an item paid for in advance of receiving its benefits. As such, itis reported as an asset on the statement of financial position.5. Long-term tangible property, plant and equipment such as equipment, buildings, andmachinery lead to adjustments for depreciation. Generally, land is the only long-term tangible plant asset that does not require depreciation.6. The Accumulated Depreciation contra asset account is used for depreciation. Itprovides financial statement users with additional information about the relative age of the assets. Without the contra account information, the reader would not be able to tell whether the assets are new or in need of replacement.7. Deferred Income is another term for Unearned or Deferred revenue, which refers tocash received in advance of providing products and services.8. Accrued revenue is revenue that is earned but is not yet received in cash (and/orother assets) and the customer has not been billed prior to the end of the period.Therefore, end-of-period adjustments are made to record accrued revenue.Examples are interest income that has been earned but not collected and revenues from services performed that are neither collected nor billed.9.A If prepaid expenses are initially recorded with debits to expense accounts, then theprepaid expenses asset accounts are debited in the adjusting entries.10. For Adidas, all of the accounts under the category of Property, plant and equipment,require adjusting entries. The expense related to the depreciation expense account would be understated on the consolidated income statement if Adidas fails to adjust these asset accounts. If the adjusting entries are not made, net profit would be overstated. Note: Students might also correctly identify accounts receivables (for allowance for doubtful accounts), inventories (for lower of cost and net realizable value), as well as amortization of finite-life intangible assets as needing adjustment.11. ‘Advance received’ would probably be another term for unearned revenues which iscash received in advance of providing products and services. Accrued expenses refer to costs that are incurred in a period but are both unpaid and unrecorded12. The accrued wages expense would probably be reported as part of “Other currentliabilities” on Puma’s consolidated statement of financial position. The items reported on the statements of financial position of companies are often summarized amounts and details or breakdown can sometimes be found in the notes to the financial statements.13. The amount of Property, plant and equipment (PPE) for 2013 is RMB 974.627 million.For its adjusting entry, 361 Degrees would need to record Depreciation Expense (debit) on the PPE and Accumulated Depreciation (credit) as the contra to the PPE account. Separate accounts must be set up for different items of PPE since each item would have different useful life and residual value.QUICK STUDIESQuick Study 3-1 (10 minutes)a. UR Unearned revenueb. PE Prepaid expenses (Depreciation)c. AE Accrued expensesd. AR Accrued revenuee. PE Prepaid expensesQuick Study 3-2 (10 minutes)a. Insurance Expense ....................................................... 1,800Prepaid Insurance ................................................. 1,800 To record 6-month insurance coverage expired.b. Supplies Expense ......................................................... 2,700Supplies .................................................................. 2,700 To record supplies used during the year.($1,000 + $3,000 – [?] = $1,300)Quick Study 3-3 (10 minutes)a. Depreciation Expense—Equipment ............................ 5,000Accumulated Depreciation—Equipment ............. 5,000 To record depreciation expense for the year.($30,000 - $5,000) / 5 years = $5,000b. No depreciation adjustments are made for land as it is expected to lastindefinitely.Quick Study 3-4 (15 minutes)a. Unearned Revenue ........................................................ 15,000Legal Revenue ....................................................... 15,000 To recognize legal revenue earned (20,000 x 3/4).b. Unearned Subscription Revenue ................................ 2,400Subscription Revenue ........................................... 2,400 To recognize subscription revenue earned.[100 x ($48 / 12 month) x 6 months]Salaries Expense (400)Salaries Payable (400)To record salaries incurred but not yet paid.[One student earns, $100 x 4 days, M-R]Quick Study 3-6 (15 minutes)Accounts Debited and Credited Financial Statementa. Debit Unearned Revenue Statement of FinancialPositionCredit Revenue Earned Income Statementb. Debit Depreciation Expense Income StatementCredit Accumulated Depreciation Statement of FinancialPositionc. Debit Wages Expense Income StatementCredit Wages Payable Statement of FinancialPositiond. Debit Accounts Receivable Statement of FinancialPositionCredit Revenue Earned Income Statemente. Debit Insurance Expense Income StatementCredit Prepaid Insurance Statement of FinancialPositionCash Accounting:Revenues (cash receipts) ...................................................... $33,000 Expenses (cash payments: $22,500 - $2,250 + $3,750) ...... 24,000 Net profit ................................................................................ $ 9,000 Accrual Accounting:Revenues (earned) ................................................................ $39,000 Expenses (incurred) .............................................................. 22,500 Net profit ................................................................................. $16,500 Quick Study 3-8 (10 minutes)The answer is c.Explanation:The debit balance in Prepaid Insurance was reduced by $400, implying a $400 debit to Insurance Expense. The credit balance in Interest Payable increased by $800, which implies an $800 debit to Interest Expense.The answer is 2.Explanation:Insurance premium error:Understates expenses (and overstates assets) by .......... $1,600 Accrued salaries error:Understates expenses (and understates liabilities) by .... 1,000 Combination of errors:Understates expenses by ....................................................$2,600Overstates assets by ............................................................$1,600Understates liabilities by .....................................................$1,000Quick Study 3-10 (15 minutes)Adjusting entry Debit Credit1. Accrue salaries expense b d2. Adjust the Unearned Services Revenue accountg cto recognize earned revenueh c3. Record the earning of services revenue for whichcash will be received the following periodQuick Study 3-11 (10 minutes)Profit margin = $37,925 / $390,000 = 9.7%Interpretation: For each one dollar that Yang Company records as revenue, it earns 9.7 cents in net profit. Yang’s 9.7% is markedly lower than the competitors’ average profit margin of 15%. Thus, it must improve performance.Quick Study 3-12A (5 minutes)The answer is d.EXERCISESExercise 3-1 (10 minutes)1. B 4. F2. E 5. D3. C 6. AExercise 3-2 (30 minutes)a. Unearned Fee Revenue ...................................................10,000Fee Revenue .................................................................10,000 To record earned portion of fee received in advance.b. Wages Expense ................................................................9,000Wages Payable .............................................................9,000 To record wages accrued but not yet paid.c. Depreciation Expense—Equipment ...............................19,127Accumulated Depreciation—Equipment....................19,127 To record depreciation expense for the year.d. Office Supplies Expense .................................................5,242Office Supplies*............................................................5,242 To record office supplies used ($480 + $5,349 - $587).e. Insurance Expense ..........................................................2,800Prepaid Insurance**......................................................2,800 To record insurance coverage expired ($5,000 - $2,200).f. Interest Receivable (750)Interest Revenue (750)To record interest earned but not yet received.g. Interest Expense ............................................................3,500Interest Payable..........................................................3,500 To record interest incurred but not yet paid.Notes:Office Supplies*Prepaid Insurance** Beg. Bal. 480 Beg. Bal. 5,000Purch. 5,349? Used ? Used End. Bal. 587 End. Bal. 2,200Exercise 3-3 (25 minutes)a. Depreciation Expense—Equipment ...............................16,000Accumulated Depreciation—Equipment....................16,000 To record depreciation expense for the year.b. Insurance Expense ..........................................................5,960Prepaid Insurance*.......................................................5,960 To record insurance coverage that expired($7,000 - $1,040).c. Office Supplies Expense .................................................2,626Office Supplies**...........................................................2,626 To record office supplies used ($300 + $2,680 - $354).d. Unearned Fee Revenue ...................................................5,000Fee Revenue .................................................................5,000 To record earned portion of fee received in advance($10,000 x 1/2).e. Insurance Expense ..........................................................4,600Prepaid Insurance ........................................................4,600 To record insurance coverage that expired.f. Wages Expense ................................................................4,000Wages Payable .............................................................4,000 To record wages accrued but not yet paid.Notes:Prepaid Insurance*Office Supplies** Bal. Bal. 7,000 Beg. Bal. 300Purch. 2,680? Used ? Used End. Bal. 1,040 End. Bal. 354a.Apr. 30 Legal Fees Expense ........................................... 2,500Legal Fees Payable ..................................... 2,500 To record accrued legal fees.May 12 Legal Fees Payable ............................................ 2,500Cash ............................................................. 2,500 To pay accrued legal fees.b.Apr. 30 Interest Expense ................................................ 2,080Interest Payable .......................................... 2,080 To record accrued interest expense (9.6% x$780,000 x 10/360) or ($6,240 x 10/30).May 20 Interest Payable .................................................. 2,080Interest Expense ................................................. 4,160Cash ............................................................ 6,240 T o record payment of accrued and currentinterest expense (9.6% x $780,000 x 20/360).c.Apr. 30 Salaries Expense ................................................. 3,600Salaries Payable.......................................... 3,600 To record accrued salaries($9,000 x 2/5 week).May 3 Salaries Payable ................................................. 3,600Salaries Expense ................................................ 5,400Cash ............................................................. 9,000 To record payment of accrued andcurrent salaries ($9,000 x 3/5 week).a. $ 1,650b. $ 5,700c. $10,080d. $ 1,375Proof:Total supplies available ............................ 2,400 7,000 11,440 7,375 Supplies available – current year-end ..... (750) (5,700) (1,840) (800) Supplies expense for current year........... $1,650 $1,300 $ 9,600 $6,575Exercise 3-6 (15 minutes)a. Adjusting entry:2015Dec. 31 Wages Expense (500)Wages Payable (500)To record accrued wages for one day.(5 workers x $100 x 1 day)b. Payday entry:2016Jan. 4 Wages Expense................................................... 1,500Wages Payable (500)Cash .............................................................2,000 To record accrued and current wages.Dec. 31 Accounts Receivable .............................................. 1,800Fees Earned ..................................................... 1,800 To record earned but unbilled fees(30% x $6,000).31 Unearned Fees ......................................................... 4,200Fees Earned ..................................................... 4,200 To record earned fees collected inadvance (70% x $6,000).31 Depreciation Expense—Computers ...................... 1,500Accumulated Depreciation—Computers ...... 1,500 To record depreciation on computers.31 Depreciation Expense—Office Furniture .............. 1,750A ccumulated Depreciation—Office Furniture ... 1,750To record depreciation on office furniture.31 Salaries Expense ..................................................... 2,450Salaries Payable.............................................. 2,450 To record accrued salaries.31 Insurance Expense .................................................. 1,300Prepaid Insurance ........................................... 1,300 To record expired prepaid insurance.31 Office Supplies Expense (480)Office Supplies (480)To record use of office supplies.31 Utilities Expense (70)Utilities Payable (70)To record incurred and unpaid utility costs.Exercise 3-8 (20 minutes)Statement of Financial PositionInsurance Asset usingInsurance Expense usingAccrual Basis*CashBasisAccrualBasis**CashBasisDec. 31, 2013 ...$11,700 $0 2013 ............$ 4,500 $16,200 Dec. 31, 2014 ...6,300 0 2014 ............5,400 0 Dec. 31, 2015 ...900 0 2015 ............ 5,400 0 Dec. 31, 2016 ...0 0 2016 ............ 900 0Total ...........$16,200 $16,200EXPLANATIONS:*Accrual asset balance equals months left in the policy x $450 per month (monthly cost is computed as $450, from $16,200 divided by 36 months).Months Left Balance12/31/2013 .... 26 $11,70012/31/2014 .... 14 6,30012/31/2015 .... 2 90012/31/2016 .... 0 0**Accrual insurance expense equals months covered in the year x $450 per month.Months Covered Expense2013 .............10 $ 4,5002014 .............12 5,4002015 .............12 5,4002016 ............. 2 900$16,200Exercise 3-9 (10 minutes)a. $5,390 / $44,830 = 12.0%b. $87,644 / $398,954 = 22.0%c. $93,385 / $257,082 = 36.3%d. $55,234 / $1,458,999 = 3.8%e. $70,158 / $435,925 = 16.1%Analysis and Interpretation: Company c has the highest profitability according to the profit margin ratio. Company c earns 36.3 cents in net profit for each one dollar of net sales recorded.Exercise 3-10A (25 minutes)a. Initial credit recorded in the Unearned Fees account:July 1 Cash ....................................................................... 2,000Unearned Fees .............................................. 2,000 Received fees for work to be done.6 Cash ....................................................................... 8,400Unearned Fees .............................................. 8,400 Received fees for work to be done.12 Unearned Fees ...................................................... 2,000Fees Earned ................................................... 2,000 Completed work for customer.18 Cash ....................................................................... 7,500Unearned Fees .............................................. 7,500 Received fees for work to be done.27 Unearned Fees ...................................................... 8,400Fees Earned ................................................... 8,400 Completed work for customer.31 No adjusting entries required.b. Initial credit recorded in the Fees Earned account:July 1 Cash ....................................................................... 2,000Fees Earned ................................................... 2,000 Received fees for work to be done.6 Cash ....................................................................... 8,400Fees Earned ................................................... 8,400 Received fees for work to be done.12 No entry required.18 Cash ....................................................................... 7,500Fees Earned ................................................... 7,500 Received fees for work to be done.27 No entry required.31 Fees Earned .......................................................... 7,500Unearned Fees .............................................. 7,500 Adjusted to reflect unearned fees for unfinished job.Exercise 3-10A - (Continued)c. Under the first method (and using entries from a):Unearned Fees = $2,000 + $8,400 - $2,000 + $7,500 - $8,400 = $7,500 Fees Earned = $2,000 + $8,400 = $10,400Under the second method (and using entries from b):Unearned Fees = $7,500Fees Earned = $2,000 + $8,400 + $7,500 - $7,500 = $10,400[Note: Both procedures yield identical results in the financial statements.] Exercise 3-11A (30 minutes)a.Dec. 1 Supplies Expense ............................................ 3,000Cash .......................................................... 3,000 Purchased supplies.b.Dec. 2 Insurance Expense .......................................... 1,440Cash .......................................................... 1,440 Paid insurance premiums.c.Dec. 15 Cash .................................................................. 12,000Remodeling Fees Earned ........................ 12,000 Received fees for work to be done.d.Dec. 28 Cash .................................................................. 3,600Remodeling Fees Earned ........................ 3,600 Received fees for work to be done.e.Dec. 31 Supplies ............................................................. 1,920Supplies Expense .................................... 1,920 Adjust expenses for unused supplies.f.Dec. 31 Prepaid Insurance ($1,440 - $240).................. 1,200Insurance Expense .................................. 1,200 Adjust expenses for unexpired coverage.g.Dec. 31 Remodeling Fees Earned .............................. 9,300Unearned Remodeling Fees ................... 9,300 Adjusted revenues for unfinishedprojects ($12,000 + $3,600 - $6,300).PROBLEM SET AProblem 3-1A (35 minutes)Part 1Adjustment (a)Dec. 31 Office Supplies Expense ............................. 12,760Office Supplies ...................................... 12,760 T o record cost of supplies used($3,000 + $12,400 - $2,640).Adjustment (b)31 Insurance Expense ....................................... 12,312Prepaid Insurance ................................. 12,312 To record annual insurance coverage expense.Policy Cost per Month Months Active in 2015 2015 CostA $660 ($15,840/24 mo.) 12 $ 7,920B 363 ($13,068/36 mo.) 9 3,267C 225 ($ 2,700 /12 mo.) 5 1,125Total $12,312Adjustment (c)31 Salaries Expense (2 days x $2,100) ............ 4,200Salaries Payable.................................... 4,200 To record accrued but unpaid wages.Adjustment (d)31 Depreciation Expense—Building ................ 27,000Accumulated Depreciation—Building 27,000 To record annual depreciation expense[($855,000 -$45,000) / 30 years = $27,000].Adjustment (e)31 Rent Receivable ............................................ 2,400Rent Earned ........................................... 2,400 To record earned but unpaid Dec. rent.Adjustment (f)31 Unearned Rent .............................................. 4,350Rent Earned ........................................... 4,350 To record the amount of rent earned forNovember and December (2 x 2,175).Part 2Cash Payment for (c)Jan. 6 Salaries Payable ........................................... 4,200Salaries Expense* ........................................ 6,300Cash ....................................................... 10,500 To record payment of accrued andcurrent salaries. *(3 days x $2,100)Cash Payment for (e)15Cash ............................................................... 2,400Rent Receivable .................................... 2,400 To record past due rent for December.Problem 3-2A (10 minutes)1. G 5. G 9. F2. E 6. C 10. D3. I 7. H 11. A4. B 8. E 12. DParts 1 and 2Part 2Adjustment (a)Dec. 31 Insurance Expense ...........................................3,000Prepaid Insurance .......................................3,000 To record the insurance expired.Adjustment (b)31 Teaching Supplies Expense ............................7,400Teaching Supplies ......................................7,400 To record supplies used ($10,000-$2,600).Adjustment (c)31 Depreciation Expense—Equipment ................12,000Accumulated Depreciation—Equipment ........12,000 To record equipment depreciation.Adjustment (d)31 Depreciation Expense—Profess. Library .......6,000A ccumul. Depreciation—Profess. Library.....6,000To record professional library depreciation.Adjustment (e)31 Unearned Training Fees ...................................4,400Training Fees Earned .................................4,400 To record training fees earned that werecollected in advance.Adjustment (f)31 Accounts Receivable ........................................7,500Tuition Fees Earned....................................7,500 To record tuition earned ($3,000 x 2 1/2 months).Adjustment (g)31 Salaries Expense (400)Salaries Payable (400)To record accrued salaries (2 days x $100 x 2).Adjustment (h)31 Rent Expense ....................................................2,000Prepaid Rent ................................................2,000 To record expiration of prepaid rent.Part 3Watson Technical InstituteAdjusted Trial BalanceDecember 31, 2015Debit Credit Cash .......................................................................... $ 26,000Accounts receivable ................................................ 7,500Teaching supplies ................................................... 2,600Prepaid insurance .................................................... 12,000Prepaid rent 0Professional library ................................................. 30,000 Accumulated depreciation—Professional library ... $ 15,000 Equipment ................................................................ 70,000 Accumulated depreciation—Equipment ................ 28,000 Accounts payable .................................................... 36,000 Salaries payable . (400)Unearned training fees ............................................ 6,600 T. Watson, Capital .................................................... 63,600 T. Watson, Withdrawals .......................................... 40,000Tuition fees earned .................................................. 109,500 Training fees earned ................................................ 42,400 Depreciation expense—Professional library ........ 6,000 Depreciation expense—Equipment ....................... 12,000Salaries expense ..................................................... 48,400Insurance expense .................................................. 3,000Rent expense ............................................................ 24,000Teaching supplies expense .................................... 7,400 Advertising expense ................................................ 7,000Utilities expense....................................................... 5,600 _______ Totals ........................................................................ $301,500 $301,500Part 4WATSON TECHNICAL INSTITUTEIncome StatementFor Year Ended December 31, 2015RevenuesTuition fees earned ............................................ $109,500Training fees earned .......................................... 42,400Total revenues .................................................... $151,900 ExpensesDepreciation expense—Professional library ... (6,000)Depreciation expense—Equipment .................. (12,000)Salaries expense ................................................ (48,400)Insurance expense ............................................. (3,000)Rent expense ...................................................... (24,000)Teaching supplies expense ............................... (7,400)Advertising expense .......................................... (7,000)Utilities expense ................................................. (5,600)Total expenses ................................................... (113,400) Net profit ............................................................... $ 38,500WATSON TECHNICAL INSTITUTEStatement of Changes in EquityFor Year Ended December 31, 2015T. Watson, Capital, December 31, 2014 .............. $ 63,600 Net profit .............................................................. 38,500102,100 Owner withdrawals .............................................. (40,000) T. Watson, Capital, December 31, 2015 .............. $ 62,100WATSON TECHNICAL INSTITUTEStatement of Financial PositionDecember 31, 2015AssetsCash ................................................................................. $ 26,000 Accounts receivable ...................................................... 7,500 Teaching supplies .......................................................... 2,600 Prepaid insurance .......................................................... 12,000 Professional library ........................................................ $30,000 Accumulated depreciation—Professional library ....... (15,000) 15,000 Equipment ....................................................................... 70,000 Accumulated depreciation—Equipment ...................... (28,000) 42,000 Total assets ..................................................................... $105,100LiabilitiesAccounts payable ........................................................... $ 36,000 Salaries payable . (400)Unearned training fees .................................................. 6,600 Total liabilities ................................................................ 43,000EquityT. Watson, Capital .......................................................... 62,100 Total liabilities and equity ............................................. $105,100。
Accountingprinciples会计原理（英文）Accounting Principles Used to Prepare theFinancial StatementsTable of Content1.Introduction (1)2. Analysis of eight accounting principles (1)2.1 Time Period Assumption (1)2.2 Principle of Historical Cost (2)2.3 Full Disclosure Principle (2)2.4 Matching principle (3)2.5 Going Concern Principle (4)2.6 Revenue Recognition Principle (4)2.7 Materiality (5)2.8 Conservatism (5)3.Conclusion (6)References (7)1.IntroductionThe goal of financial statements is to provide users with accounting information relevant to the enterprise financial position, operation outcome, cash flow etc., reflect managers’ performance of fiduciary responsibilities,so as to help financial statement users make proper economic decisions. In this paper, the author will explain eight different accounting principles used to prepare the financial statements with suitable examples or illustration.2. Analysis of eight accounting principles2.1 Time Period AssumptionThe concept of Time Period refers to that accounting information should be collected and handled following timeperiods (Zeff, 2012). Time Period Assumption is a necessary supplement of Going Concern Assumption. This principle lays a foundation for other accounting principles such as Cost Principle and Matching Principle. Assuming an accounting entity should endlessly operate a business, logically the provision of accounting information needs to have regulated time period, which is the premise for accounting to perform effect (Schipper, 2003).The principle of Time Period Assumption manually divides the constant production and operation activities of an enterprise into various time periods, calculate economic activities and report operation outcome by stages (Zeff, 2012). It is because stakeholders need to timely know the financial condition and operation outcome of the enterprise, thus the enterprise should regularly provide accounting information as the basis of decision-making.Clarifying the basic premise of accounting time period has great importance to accounting, Due to the time period, the differences between this period and other period exist, thus generates the differences between accrual basis and cash basis, different types of accounting entities have the benchmark of keeping accounts, and further the accounting methods such as accounts receivable, accounts payable, accrual, deferral, prepaid and so on.In China’s accounting practice, an accounting year refers t o January 1st to December 31st (Zeff, 2012). For example, Financial Statements of 2012 reflects the financialinformation from January 1st 2012 to December 31st 2012. Financial statements which less than one year are called mid-term statements. Mid-term statements are mainly embodied assemi-annual statements and quarterly statements.2.2 Principle of Historical CostPrinciple of Historical Cost means that the recording of accounting elements should use the acquisition cost when economic businesses took place as the standard to measure (Weygandt et al, 2010). The main content of this principle is that all kinds of assets gained by an enterprise should use the primitive cost (actual cost) occurred when purchasing or building to record, and make it as the basis of share and transfer cost (White, 2006). When price of commodities changes, enterprises cannot adjust its accounting value except for state policy changes. Valuation according to actual cost can avoid randomness, make accounting information reliable and easy to know and compare.Principle of Historical Cost is mainly used to determine the cost of assets on the account book. For example, an enterprise spent $5 million buying an office building on January 1st 2010, thus when recording，the actual cost of the building is $5 million. Suppose that till January 1st 2013, the market price of this office building increased to $8 million, at that moment, there is no need to adjust the original recorded value, the original actual cost or the historical cost should be still on the account book. It should be noticed that, it does not mean that recorded value cannot be adjusted. For instance, this enterprise will sell the building, so assets appraisal will be conducted. This is a special case (White, 2006).2.3 Full Disclosure PrincipleFull Disclosure Principle refers to that in order to achieve the just reflection of an enterprise’s economic events and the influence, all necessary information should be fully provided and should be easy for users to understand (Weygandt et al, 2010).The goal of full disclosure is to meet users’ demand fo r decision-making. Full Disclosure Principle has several aspects of meaning.Firstly, comprehensiveness of disclosure. Comprehensiveness means any information which has influence on use rs’ decision-making or reflects economic events should bedisclosed. Horizontally, any information which reflects production and operation condition should be disclosed. Vertically, not only the surface but also the in-depth information should be recorded. Accounting information is mainly provided by financial statements, this kind of regular and unified format has some limitations. The Notions as the supplementary information become more important with the guidance of Full Disclosure Principle (Schipper, 2003). Secondly, the properness of disclosure. Over-disclosure will make users confused. Therefore major programmes should be disclosed in-detail, while less-important programmes can be disclosed less, so as to let users effectively use the information. Thirdly, the effectiveness of disclosure. Understandable is the connection between decision-makers and the effectiveness of decisions.Besides, information should meet the common demands of different users. Lastly, the promptness of disclosure requires obligators to disclose information in specific ways according to laws and regulations.2.4 Matching principleMatching Principle means the income of a certain time period or a certain accounting object should match the corresponding cost, so as to correctly calculate the net profit or loss of the accounting entity during the time period (Weygandt et al, 2010). Matching Principle as a requirement of accountingelements confirmation, is used to determine profits. Economic activities accounting entity will bring some certain income and also spend corresponding costs. Income and cost are the unity of the opposites, profits is the result. Matching Principle is based on Benefit Principle. Direct costs with causal relations and indirect costs without causal relations must be distinguished according to the Matching Principle. Direct costs should be directly matched with income to decide the loss or profit, while indirect costs firstly make apportionment among all products and income with proper standard, and than determine the loss or profit through matching revenues and expenses (Weygandt et al, 2010).Therefore, the Matching Principle has three aspects of meaning. Firstly, income of a product must match the cost of the product. Secondly, income of a time period must match the cost of the time period. Thirdly, income of a department must match thecost of the department.2.5 Going Concern PrincipleGenerally, going concern refers to one enterprise can maintain constant business operation in the foreseeable future (usually 12 months in a year), without intention or risk of bankruptcy (Efendi et al, 2007). In this case, the asset value of the enterprise can be remained, it also has the ability to pay its debt, income potential of going concern can improve the overall value of the enterprise. If an enterprise suffers long-term losses or investment error, insolvency may occur. In severe cases, enterprises cannot go concern, thus assets cannot be recorded according to fair value, but should be investment depreciation according to market price(Zeff, 2012).For instance, an enterprise uses $150000 to buy anequipment and predicts that the equipment can be used for five years and brings the enterprise $40000 every year. Based on Going Concern Principle, the enterprise will not go bankrupt in 5 years. Therefore, the $150000 investment can be regained in 5 years with $30000 cost annually, thus the equipment can gain $10000 per year. However without such assumption, accounting cannot be conducted normally. If the enterprise goes broke after 4 years, the equipment cost must be regained in four years, thus every year should bear $37500, there will be only $2500 profit.Without the assumption, accounting will have no certain time range, thus cannot complete. Similarly, production and operation activities cannot be organized neither (Ryan et al, 2002). 2.6 Revenue Recognition PrincipleRevenue recognition means the time when revenue is recorded. Revenue recognition should solve two problems, one is timing, the other is measuring (Ryan et al, 2002). Revenue recognition mainly includes the recognition of product sales revenue and service revenue. Besides, it also includes the revenue that gain from offering other to use the assets of the enterprise, such as interest, use fee and dividend. This principle must meet four basic premises: definability, accountability, relativity and reliability (Weygandt et al, 2010). Meanwhile, it must conform to some common standards.In No.5 financial accounting concept of morality released by Financial Accounting Standards Board (FASB), according to Revenue Principle, revenue is usuallyrecognized when revenue is realized or realizable, or is earned (Schipper, 2003). Therefore, revenue of selling products is generally recognized on the sales date. Service revenue is confirmed when completing the duty of offering services.Revenue gained from allowing others to use the corporate is gradually recognized with the time passes or the procedure of asset use. While the International Accounting Standards Board (IASB) emphasizes on defining revenue timing from the basic standard that whether the important risks and rewards have been transferred to the buyers (Schipper, 2003).2.7 MaterialityThe Materiality principle has several features. Firstly, the core is one cannot omit or misrepresent important information, the standard of judging importance is to see whether it will influence the decisions of users. Secondly, the concept is proposed from the perspective of information users, main users include investors, shareholders etc. Thirdly, judgment of materiality cannot be separated from the enterprise environment, different enterprises or the same enterprise in different period, the standards may differ (Weygandt et al, 2010). Lastly, judgment of importance cannot neglect its own nature. Some information does not reach the importance, but the nature is serious, thus it has conformed to the requirement of materiality, so it should be disclosed.In terms of the application of this principle, firstly, it can be used in the recognition of post balance sheet events. Matters need to be adjusted or explained means information which reaches to the materiality standard and can influence decision-making should be handled specifically. Secondly, it can be used in making mid-term financial statements. The aim is to improve the promptness of information, therefore it does not require the enterprises to provide complete information like annual financial statements (Weygandt et al, 2010). In addition, the principle can also used in recognition of segmental reporting, trade disclosureof related parties and disclosure of notes to financial statements.2.8 ConservatismThe principle of Conservatism refers to that when dealing with the uncertaineconomic businesses of the enterprises, people should hold the cautious attitude. That is to say, all predictable loss and cost should be recorded and confirmed, while income without 100% certainty cannot be recognized and recorded. In market economy conditions, enterprise inevitably will face risks,implementing the Conservatism principle can help enterprises resolute or prevent risks before the risks come. It is beneficial for enterprises to make correct operation decisions, protect interest of owners and stakeholders, improve enterprises’ competence in market.This principle has both advantages and disadvantages. It has the information features demanded by stakeholders, which can protect their interest so as to avoid unnecessary loss. It is also an effective management method in principle making institutions and a standard when accounting staff deal with the uncertain items. However, it may reduce the quality of accounting information because it has much judgment and estimation. It also brings some convenience for information counterfeiters and managers’ short-term behaviors.3.ConclusionUnder modern corporate system, ownership and managing right of enterprises are separate. Only through accounting information can users precisely judge whether the investment is used scientifically and appropriately. In order to prepare good financial statements, various accounting principles should be adopted, therefore, it is important for accounting professionalsto have a comprehensive understanding of various accounting principles and their applications.References:Efendi, J., Srivastava, A., & Swanson, E. P. (2007). Why do corporate managers misstate financial statements? The role of option compensation and other factors. Journal of Financial Economics, 85(3), 667-708.Ryan, B., Scapens, R. W., & Theobald, M. (2002). Research method and methodology in finance and accounting.Schipper, K. (2003). Principles-based accounting standards. Accounting Horizons, 17(1), 61-72.Weygandt, J. J., Kimmel, P. D., KIESO, D., & Elias, R. Z. (2010). Accounting principles. Issues in Accounting Education, 25(1), 179-180.White, G. (2006). 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