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And Constraints

Diana Michalak


Sara Carpenter

August 5, 2011

The basic assumptions of accounting consist of four assumptions. Monetary Unit Assumption, which states that “only transaction data that can be expressed in terms of money be included in the accounting records(Ch 7.).” Economic Entity Assumption, which states that “the activities of the entity be kept separate and distinct from the activities of the owner and of all other economic entities. (Ch 7)” The Time Period Assumption which is an assumption that “the economic life of a business can be divided into artificial time periods (Ch 7).” The Going Concern Assumption which states that “the company will continue in operation long enough to carry out it’s existing objectives (Ch 7.).”
The Principles of accounting consist of 4 principles. The first principal is The Revenue Recognitions Principle. This principle “dedicates that companies should recognize revenue in the accounting period which it is earned (Ch 7).” The second one is The Matching Principle which dedicates “that companies match expenses with revenues in the period in which efforts are made to generate revenues (Ch 7).” The third is the Full Discloser Principle which requires that companies disclose certain circumstances and events that make a difference to financial statement users (Ch 7).” The fourth one is the Cost Principle which “dedicates that companies record assets at their cost (Ch 7).”
The constraints of accounting consist of two constraints. The first one is Materiality which “relates to an items impact on a firms overall financial condition and operations (Ch 7).” The second one is conservatism which “dedicates that when in doubt choose the method that will be least likely to overstate assets and income (Ch 7).”
In conclusion financial reporting depends on...

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