Introduction to financial_concept

May 28th, 2015
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Accounting Concepts Underlying Assumptions, Principles, and Conventions   Financial accounting relies on several underlying concepts that have a significant impact on the practice of accounting.

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Accounting ConceptsUnderlying Assumptions, Principles, and ConventionsFinancial accounting relies on several underlying conceptsthat have a significant impact on the practice of accounting.AssumptionsThe following are basic financial accountingassumptions:Separate entity assumption - the business is an entity thatis separate and distinct from its owners, so that the financesof the firm are not co-mingled with the finances of the owners . Going concern assumption - the business is going to beoperating for the foreseeable future. Stable monetary unit assumption - e.g. the U.S. dollar Fixed time period assumption - info prepared and reportedperiodically (quarterly, annually, etc.)PrinciplesThe basic assumptions of accounting result in thefollowing accounting principles:Historical cost principle - assets are reported and presented at theiroriginal cost and no adjustment is made for changes in market value. Onenever writes up the cost of an asset.Matching principle - matching of revenues and expenses in the periodearned and incurred.Revenue recognition principle - revenue is realized (reported on thebooks as earned) when everything that is necessary to earn the revenuehas been completed.Full disclosure principle - all of the information about the businessentity that is needed by users is disclosed in understandable form.Modifying ConventionsDue to practical constraints and industry practice, GAAPprinciples are not always app

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