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    Bookkeeping - Principles_and_Assumptions

    Uploaded by

    Alisson Melo

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Bookkeeping - Principles_and_Assumptions

    Uploaded by

    Alisson Melo
    14 views2 pages

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    © © All Rights Reserved

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    PDF, TXT or read online from Scribd

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    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    14 views2 pages

    Bookkeeping - Principles_and_Assumptions

    Uploaded by

    Alisson Melo

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Bookkeeping

    Principles
    and assumptions
    Economic entity assumption
    The business is a separate entity, so the activities of a business must be
    kept separate from any other financial activities of the business owners.
    Example: Business and personal expenses need to be separate.

    The reliability assumption


    It is mandatory for companies to record only accounting transactions
    that can be verified through invoices, billing statements, receipts
    and bank statements.
    Example: If you don’t have a receipt and paid in a non-trackable way (cash),
    then you cannot record the item in a financial document.

    Full disclosure principle


    All information that is relative to the business and is important to
    a lender or investor has to be disclosed in financial statements or in
    the notes of the statements.
    Example: If a worker files worker’s comp, then this needs to be included in
    the notes of financial statements.

    Conservatism assumption
    When bookkeepers or accountants are uncertain and need to determine
    how to report an item, conservatism guides them to choose the option
    that show less income or asset benefit. Potential losses can be recorded,
    while potential gains cannot.
    Example: A
     potential lawsuit should be considered a loss and noted, however
    a possible new gain from increased traffic due to a new business
    opening nearby could not be counted as potential gain.

    © 2023 Intuit Inc. Intuit Proprietary and Confidential.


    Materiality principle
    An accounting standard can be ignored if the impact has such a small
    effect on financial statements that it would not be misleading. This is very
    subjective and bookkeepers should ask for advice from colleagues or an
    accountant when needed.
    Example: When recording documentation, round to the nearest whole dollar, not cents.

    Consistency principle
    When a business adopts a specific accounting method, it will enter all
    similar items in the exact same way in the future. This principle applies
    to line items on all financial statements and reports. Only change an
    accounting principle or method if the new version improves reporting.
    Example: If you hire a new bookkeeper who handles depreciation calculations
    differently, your expenses may look different from previous statements,
    without an actual change in finances.

    Monetary unit assumption


    One currency is used throughout all accounting activities. In the US, the
    US dollar is currency used in accounting. Inflation is not a consideration
    in recording finances.
    Example: L
     and prices have increased, but no additional information other than
    price paid at the time of purchase should be made.

    Going concern assumption


    A business is stable enough to operate and meet obligations for the
    foreseeable future. The business acts and makes decisions based on the
    objective of continuing to run the business, rather than liquidating the
    business. If a business is no longer a going concern it should report the
    issues it’s having including ongoing losses, credit denial, and lawsuits.
    Example: W
     hen a business is assumed to be in danger of failing in the next year due to
    unpaid debts and is denied a loan to repay the debt, it is no longer a going
    concern.

    © 2023 Intuit Inc. Intuit Proprietary and Confidential.

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