Checkpoint week 1 Accounting

Checkpoint week 1 Accounting - Be conservative with the...

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The basic assumptions of accounting are identifying, recording, and communication. To identify economic events that will affect a company, then recording the events in order to provide a history of financial activities, and communicating the information to the investors. The principle assumptions of accounting include monetary unit assumption which requires companies to include the accounting records in money terms. Economic entity assumption requires the activities of the entity be separate and distinct from the owner’s activities and any other economic entities. Keeping their living costs separate from their business expenses is important for the success of any company. The constraints of accounting: Materiality is the items impact on a company’s overall financial condition and operations. It is material when it will influence the decision, immaterial if its omission has no impact on a decision maker. Conservatism dictates that when there is doubt, the method that is less likely to overstate assets and income is the way to go.
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Unformatted text preview: Be conservative with the reporting instead of overestimating something will be a safe way to report things for the company. GAAP are principles that are generally accepted and universally practiced. Using the methods above, that is one way for many companies to be on the same path and for accounting to be easier to understand. Using assumptions such as identifying, recording and communicating are ways for a company to be accurate in their book keeping practices and for those who make very important choices to know what they are working with. Principles are there to keep people accountable to their businesses. Keeping owners out of the till makes a company successful because they are able to show a profit. If the owners expenses aren’t included or the investors aren’t it is showing a more accurate credit and debit of a business. Using the constraints are what people use to make good choices for their company and looking at the big picture....
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