The Accounting Convention That States That Every Transaction Has at Least

question 40

Multiple Choice

The accounting convention that states that every transaction has at least two effects on the accounting equation, so that after the transaction is processed, the equation remains in balance is the:

• A)going concern/continuity convention.
• B)objectivity/reliability convention.
• C)conservatism/prudence convention.
• D)dual aspect convention.

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Definitions:

Time Value

The theory that money today is more valuable than the same quantity in the future, due to its potential to accumulate additional value.

Profitability Index

A financial tool that calculates the ratio between the present value of cash inflows and the present value of initial investment, often used in capital budgeting.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to analyze the profitability of an investment.

Profitability Index

A financial tool used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.