If the consideration given for an asset or service is

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are recorded at cost, where costs are measured on a cash or equivalent basis.  If the consideration  given for an asset or service is cash, cost is measured at the entire cash outlay made to secure the asset  or the service.  Otherwise, cost is measured at the cash equivalent value of the consideration given or  the cash equivalent value of the thing received whichever is more clearly evident. (2) Objectivity Principle This   principle   requires   that   entries   in   the   accounting   records   and   data   reported   on   financial  statements be based on objectively determined evidence.   This principle answers the question why  assets and services are recorded at cost rather than some other amount such as estimated market  value.  As a rule, costs are objective since normally are established by buyers and sellers, each striking  the best possible bargain for themselves.  If this principle is not followed, the confidence of the many  users of the financial statements could not be maintained.  For example, objective evidence such as  invoices and vouchers for purchases, bank statements for the amount of cash in bank, and physical  counts for merchandise on hand supports much of the accounting.   Such evidence is completely  objective and can be verified. (3)  The Matching Principle How well or bad the company is doing is reflected to users on the income statement prepared for a  period of time.   The income statement tries to measure the business’s earnings by comparing the  revenue with expenses of that period which is covered by the income statement. The matching  2
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principle means that after the revenues for an accounting period have been determined, the costs  associated with those revenues must be deducted in order to determine net income.   The term  matching refers to the close relationship that exists between certain costs and the revenue realized as a  result of incurring those costs.  (4) Adequate Disclosure Principle All financial statements and accompanying statements should include the necessary data that helps to  facilitate the user’s understanding.   Thus, all relevant information to the users must be disclosed.  However, full disclosure does not mean that everything must be disclosed.  That would be too costly.  A 
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  • Spring '11
  • Abner
  • Revenue, Wilson Blowhard, Mr.   Blowhard

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