Accounting_Assumpions

Accounting Assumptions, Principles, and Constraints Scott Longo Xacc/280 November 30, 2012 Greg Drakulich Accounting Assumptions, Principles, and Constraints There are four basic assumptions of accounting; monetary unit assumption, economic entity assumption, time period assumption, and going concern assumption. The monetary unit assumption specifies that only transaction data that can be articulated in terms of money may be included in the accounting records. Economic entity assumption states that the activities of the entity are to be kept separate, and distinctive from the owner and other economic entities. Time period assumption separates financial information into time periods for reporting purposes. The going concern assumption assumes the company will continue to operate long enough to meet their objectives. The principles of accounting are; cost principle, revenue recognition principle, matching principle and full disclosure principle. The cost principle states that the company should record their assets at their cost. The revenue recognition principle states that revenues are recognized as soon as the product is sold, or a service is rendered regardless of the amount of money received at that time. The matching principle requires acknowledgment of expenses in the same period as related revenues. The full disclosure principle makes sure all pertinent financial information is reported. The constraints to accounting are; Materiality and conservatism, According to "Businessdictionary.com" (2012) Materiality is the measure of an items impact on a company’s economic condition. Conservatism is an approach to accounting that requires the accountant to have a high degree of scrutiny of losses, income, and expenditures prior to making claims of profits. GAAP (Generally Accepted Accounting principle) is especially useful because it attempts to standardize and regulate accounting methods, principles and assumptions. Reference Businessdictionary.com. (2012). Retrieved from http://www.businessdictionary.com/definition/accounting-conservatism.html Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial accounting (6th ed.). Hoboken, NJ: Wiley.