Which of the following is the principle that a business must...

Which of the following is the principle that a business must report any business activities that could
affect what is reported on the financial statements?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle

Transcript

00:01 Okay, so let's understand the meaning of full disclosure principle through an example, first of all.

00:09 So let's just suppose we have entity abc and company, abc and company has prepared financial statements for period first jan 2021 december 2020.

01:01 Like a generic type of financial statements we can have very very traditional format i'm going to use right now for sake of simplicity okay so let's draw it another level liberties and assets like capital like capital of say hundred one k dollars and short term debt 500k $500 and long term debt $500 so it's $2k8 cash $1 ,000 dollars thousand dollars so what the full disclosure principle says let's say if the entity has prepared this financial statements for the period for this period you know what the full disclosure principle says that if there is anything or any matter which is required to be which is or which has potential to affect any of these items any of these items in the financial statements then that matter should be reported in the notes to the financial statements like what can what type of matters we can have let's also understand like we can have matters like this the capital also includes preferential capital so that there is a law that requires the preferential capital redemption rules and it also needs to be segregated into non cumulative and cumulative dividend so these are the matters which if present in the preparation of financial statement then these types of matters must be reported in the notes to financial statements and let's say suppose short -term debt what type of matters we can have like we can have the short -term debt is going to be restructured because the entity is although entity is having sufficient cash to pay out both of the loans in one but still the entity is likely to restructure the short -term debt and what is the meaning of restructure just modifying the schedule of repayment of loan so like restructure we can have so these type of matters for cash also we have matter that maybe the catch is not verified at the end of balance sheet by the auditor so that these type of matter can be reported the notes also same as for debtors we can have also.

05:26 So that is by full disclosure.

05:39 So it's it's meaning actually, it's little meaning give all the answers itself.

05:52 Like you have to disclose everything which has been presented in the financial statements.

06:08 Report every matter that has potential to affect the matters present...

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