Accounting
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- Date Submitted: 07/28/2010 05:46 PM
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Accounting Assumptions, Principles, and Constraints
It can be said that when dealing with all aspects of accounting one would have their own assumptions of what exactly accounting can be interpreted to be. Along with assumptions, there are certain principles and constraints that are established in the accounting field. A clear explanation of principles, assumptions, and constraints can be done.
The assumptions in accounting are first the monetary unit assumption which is the requirement of companies to express transaction data in accounting records in terms of money. Economic entity assumption is the requirement of each entity activities is separated from the activities of the owner and other economic entities. (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. 2008)
One of the principles of accounting is the cost principle which dictates that companies record assets at their own cost for the time it is purchased and for how long it is held. Another principle called the GAAP (generally accepted accounting principles) where how to report economic events can be indicated. There are several other accepted principles such as the Securities and Exchange Commission, Financial Accounting Standards Board, and the International Accounting Standards Board. (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. 2008)
To ensure sound financial reporting the dependence of using proper principles such as the GAAP will keep the companies accounting intact; the use of assumptions particularly the monetary unit assumption will keep information clear and recorded along with the constraints of knowing what can or cannot be done in the companies accounting.
It can be said that when dealing with all aspects of accounting one would have their own assumptions of what exactly accounting can be interpreted to be. Along with assumptions, there are certain principles and constraints that are established in the accounting field. A clear explanation of principles, assumptions, and constraints can be done.
The assumptions in accounting are first the monetary unit assumption which is the requirement of companies to express transaction data in accounting records in terms of money. Economic entity assumption is the requirement of each entity activities is separated from the activities of the owner and other economic entities. (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. 2008)
One of the principles of accounting is the cost principle which dictates that companies record assets at their own cost for the time it is purchased and for how long it is held. Another principle called the GAAP (generally accepted accounting principles) where how to report economic events can be indicated. There are several other accepted principles such as the Securities and Exchange Commission, Financial Accounting Standards Board, and the International Accounting Standards Board. (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. 2008)
To ensure sound financial reporting the dependence of using proper principles such as the GAAP will keep the companies accounting intact; the use of assumptions particularly the monetary unit assumption will keep information clear and recorded along with the constraints of knowing what can or cannot be done in the companies accounting.