The Importance of Trust as a Fundamental Principle in Capitalism

question 45

Multiple Choice

The importance of trust as a fundamental principle in capitalism is illustrated by expectations that:

• A) investors will be able to earn a return on their investments.
• B) employees may be discharged at any time for any reason without notice.
• C) litigation is inevitable because parties to agreements usually break promises.
• D) insider trading proves that the economic system underlying business is flawed.

---

Definitions:

Restricted Fund Method

An accounting approach used for reporting where resources are segregated based on restrictions or designations imposed by donors or regulators.

Deferral Method

An accounting practice where certain revenues and expenses are deferred to future accounting periods, rather than being recognized immediately.

Encumbrance System

A financial accounting system used primarily by governments that tracks commitments made against funds before they are actually spent, ensuring that appropriations are not exceeded.

Expenditure Basis

An accounting method where expenses are recognized and recorded at the point when the obligation is incurred.