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Which accounting principle requires that financial statements reflect the econom

Practice Questions

Q1
Which accounting principle requires that financial statements reflect the economic reality of a business?
  1. Conservatism
  2. Going Concern
  3. Substance Over Form
  4. Matching Principle

Questions & Step-by-Step Solutions

Which accounting principle requires that financial statements reflect the economic reality of a business?
  • Step 1: Understand that financial statements are reports that show the financial position of a business.
  • Step 2: Learn that there are principles that guide how these statements are prepared.
  • Step 3: Identify the principle called 'Substance Over Form'.
  • Step 4: Recognize that this principle means the financial statements should show the true economic reality of the business.
  • Step 5: Realize that this principle is more important than just showing the legal aspects of transactions.
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