There are Four Basic Assumptions of Accounting: Economic Business Entity Going Concern Monetary Unit Time Period 11, economic Business Entity Assumption, all of the business transactions long essay on environmental pollution should be separate from the business owners personal transactions There should be no co-mingling of personal funds with business. For recording the transactions, it is the business which is the entity and with which we are concerned. Although, the customer may choose not to sue, the accountant will disclose this potential lawsuit to investors. Even the proprietor is treated as a creditor to the extent of his capital. Accounting assumptions defined as rules of action or conduct which are derived from experience and practice and when they prove useful, they become accepted principles of accounting. Expense Recognition Principle, also known as matching, Expenses should be recognized in the same period that the related revenues are recognized.
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Going Concern Assumption, financial statements are prepared under the assumption that the company will remain in business indefinitely unless there is sufficient evidence otherwise. Circumstances and events that make a difference to financial statement users should be disclosed. 2-6 Copyright 2011 John Wiley Sons, Inc. Materiality constraint, this rule says that an immaterial item need not be given strict accounting ibn khaldun thesis treatment. In case this concept is not followed, the fact should be disclosed in the financial statements together with reasons. States that the requirements of any accounting principle may be ignored when there is no effect on the decisions of the user of financial information. In other words, the proprietor of an enterprise is always considered to be separate and distinct from the business which he controls. Revenue Recognition Principle, revenue is earned and recognized upon product delivery or service completion, without regard to when cash is actually received. Periodicity assumption a company can divide its economic activities into artificial time periods (monthly, quarterly, yearly). 17, full Disclosure Principle, all information pertaining to the operations and financial position of the entity must be reported within the period of time in question. And four basic accounting assumptions are part of gaap, accounting principles, and the double entry system.
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