Submitted by: Submitted by tracybleichroth
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Words: 270
Pages: 2
Category: Business and Industry
Date Submitted: 11/13/2011 06:15 AM
Accounting, Assumptions, Principles, and Constraints
Basic accounting assumptions are provided for recording transactions and preparing financial statements. There are four basic assumptions of accounting. They include accounting entity, money measurement, going concern, and accounting period.
The U.S. Generally Accepted Accounting Principles (GAAP) is rules that are used to prepare, present, and report financial statements. So the principles are historical cost, revenue recognition, matching principle, and full disclosure principle.
Along with the basic assumptions of accounting and the principles of accounting, there are also constraints of accounting. The constraints include the objectivity principle, materiality principle, consistency principle, and the conservatism principle.
There are many reasons why sound financial reporting depends on principles, assumptions and constraints. You can never really run a successful business without the means of financial accounting. You cannot have strong accounting aspects without the assumptions. Accounting entity keeps the business separate from the owners. Money measurement measures the incoming and outgoing money. Going concern deals with the indefinite operation of the business. The regular principles of the GAAP cannot be beneficial without each other. The constraints are in place to assure that the accounting principles are done and used in the right manners. The objectivity principle states that financial statements need to be done on an objective level of proof. The materiality principle states the importance of an item as it is recorded. The consistency principle states that it is in the company’s best interest to use the same accounting techniques every year. The conservatism principle helps to choose a solution that will best benefit the company in the accounting area of making a decision.