What are accounting principles? What are accounting assumptions?
- What is Cost Principle? Cost Principle (this principle tells us that we record everything at cost. If you buy a building for $100,000, you record it at $100,000. Simple as that.)
- What is Revenue Recognition Principle? Revenue Recognition Principle (this principle tells us that we only record revenues, when we earn them. We earn revenues when we provide a service or sell a product. If we sell a product for $100, we just earned revenue of $100.)
- What is Matching Principle? Matching Principle (this principle tells us that expenses associated with specific revenues, should matched in the same period. For example, If I provide a service in 2017 that is a revenue to the company. But if they pay me salaries in 2018, that is an expense to the company, directly connected to the revenue earned in 2017. Therefore, we must match the expense to the revenue in 2017.)
- What is Full-Disclosure Principle? Full-Disclosure Principle (this principle tells us that we must inform the users of our financial records about everything.)
- What is Business Entity Assumption? Business Entity Assumption (this assumption tells us that we assume that we as owners are separate from the business entity. If you own a coffee shop, you are you own entity, and the coffee shop is a separate entity.)
- What is Going-Concern Assumption? Going-Concern Assumption (this assumption tells us that we assume the business will continue running and will not go out of business.)
- What is Periodicity Assumption? Periodicity Assumption (this assumption tells us that we use artificial periods of time for reporting purposes, such as monthly, quarterly, or yearly.)
- What is Unit of Measurement Assumption? Unit of Measurement Assumption (this assumption tells us that we use dollars for measurement.