Q25-18RQ - Horngren'S Financial And Managerial Accounting

Question

What is a constraint?

Step-by-Step Solution

Answer

Answer

Constraint refers to a hurdle that resists a business entity to achieve its goals. 

Step-by-Step Solution Step 1: Meaning of Business

The term business refers to an entity established by the law of a country to perform ethical commercial activities and generate revenues. A business entity contains its separate legal identity as per the economic entity principle.

Step 2: Meaning of Constraint

In accounting terms, constraint refers to the obstacles that a business concern faces. Such problems and difficulty stop an entity from accomplishing its goals. 

Constraints may arise from the shortage of resources, variations in market strategies, and legal changes made by the law of a country that impacts a business negatively.