Assignment
Accounting principles and assumptions are the essential guidelines under which businesses prepare their financial statements. These principles guide the methods and decisions for a business over a short and long term. Cite the appropriate accounting principle or assumption for each separate idea
a. Under this principle revenue is to be recorded when it is realized (or realizable), and when it is earned and not when it is received. Revenue is realized when goods or services are exchanged, is realizable when assets received can be converted to cash, and is earned when all necessary requirements are met entitling the company to the benefits represented by the revenue (e.g. services performed).
b. The historical cost principle deals with the valuation of both assets and liabilities. The value at the time of acquisition is used to value most assets and liabilities. However, in accordance with the cost principle, the original (historical) price of the building is what is recorded as the cost of the building in the books of the business.
c. This principle mandates that the expenses of a business need to line up with its revenue. The expense or cost of doing business is recorded in the same period as the revenue that has been generated as the result of incurring that cost.
d. This principle states that all past, present and future information that may have had an impact on the financial performance of the company needs to be fully disclosed. The historical performance of a company is readily available, but examining the numbers does not always provide the entire financial picture of a company. Sometimes there are alternative situations that need to be reported. In addition, incomplete financial transactions or any other conditions that could impact the company's performance must also be disclosed. Most of these transactions are disclosed in the footnotes to the financial statements.
e. The accounting information reflects a presumption the business will continue operating.
f. We can express transactions in money.
g. The life of a company can be divided into time periods, such as months and years.
h. A business is accounted for separately from its owner or other business entities.