Accounting_Concepts

Accounting Concepts  Accounting concepts can have many views. We will review the following concepts relating to accounting, basic assumptions of accounting, the principals of accounting, and constraints of accounting. The basic assumptions of accounting are monetary unit assumption and economic entity assumption. Monetary unit assumption describes the organizations accounting records for transactions that have monetary significance. For example, an employee moral character would not have significance because companies cannot measure an employee’s character as money. Economic entity assumption can be described as a community entity that conducts activities separately from personal expenses. For example, a barbershop owner must maintain his personal living expenses separate from the expenses of his barbershop business for accounting records. In summary the principals of accounting are revenue recognition principle, which determines which companies recognized revenue. Next principle is the matching principle, which determines the companies that match expenses with revenue excluding cash purchases. The next principle is full disclosure principle, which requires organizations to disclose financial statements to investors. The final principle is cost principle, which represents the price paid for company assets such as computers, workstation, and other equipment for operation. The constraints of accounting can be identified as materiality and conservatism. Materiality determines an items influence on a company overall financial status and operations. A particular item can be materiality when the item is influence onto other parties such as the investor. At the same time an item can have a no influence if it does not have a factor in the decision-making. Conservatism constraints require companies to report its inventory of goods and material at the complete cost. Sound financial reporting depends on the accounting principles concepts set fourth by the generally accepted accounting principles (GAAP) standards. GAAP standards are general guides for accounting financial reporting and are supported by these sets of principles.