Concepts, Principles and Basis

  1. Entity Concept
    • An organization stands apart from other organizations as a separate economic unit
  2. Going Concern Concept
    • Entity will continue to operate long enough to recover cost of its assets
  3. Time Period Concept
    • Report information at regular intervals
  4. Reliability Principle
    • Accounting records must be based on the most reliable (verifiable by an independent observer) data available
  5. Cost Principle
    • Assets/services acquired are recorded at actual, historical cost
  6. Revenue Principle
    • Establishes when to record revenue, usually when earned
    • Revenue is earned when the business has completed rendering services to the customer
    • Amount to record is equal to cash value of services or goods
  7. Matching Principle
    • Expenses matched against revenues in same accounting period
  8. The Accounting Period
    • Usually one year ending December 31
    • Fiscal year ends on any other date of the year
  9. Cash Basis Accounting
    • Impact of events not recognized until cash is paid or received
  10. Accrual Basis Accounting
    • Impact of events recognized as they occur
    • Transactions are recorded even when cash not received or paid
    • Required by GAAP
  11. Stable Monetary Unit
    • Basis for ignoring inflation
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