4 Assumptions In Accounting

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4 assumptions in accounting:

Economic Entity: financial activities of a bus can be separated from the financial activities of bus owner.
Time period: acc. assume that eco information can be meaningfully communicated over short periods of time- periodic measurements of bus’ success or failure.
Monetary unit: the dollar is the most effective means to communicate eco activity.
Going concern: company will continue to operate into foreseeable future- long enough to carry out its commitments.

Reporting Profitability: the statement of comprehensive income statement reports company’s revenues and expenses over a specific period of time- R>E= profit, E>R= loss
Statement of Comprehensive income= income statement total comprehensive income= net income. revenue- increase in resources resulting from the sale of goods revenue recognition principle- revenue should be recorded when a resource has been earned (when collection of cash is assured). expense- decrease in resources resulting fro the sale of goods or provision of services. matching principle- when expenses are used to generate revenues they should be recorded in that period depreciation expense- portion of cost be expensed in the period of time used.

The statement of financial position and related terms

Asset: eco resource from transaction and provides future eco benefit.
Liability: obligation of a business, results from a past transaction, require the sacrifice of eco resources at future date. e.g. accounts payable, salaries payable, taxes payable.
Equity: diff btw company’s assets and liabilities, representing share of assets that is claimed by company’s owners.

The statement of financial position and related terms

financial statement that shows a company’s assests, liabilities and equity at a specific point in time.
Cost principle- assets should be recorded, reported at cost paid to acquire them. contributed capital- resources that investor contibte to a business in exchange for ownership interest.

Reporting financial position: the statement of financial position business’ current financial position, what does the business own and owe?

Basic structure of the statement of financial position accounting eq= assets= liabilities + equity reported at given time/date also known as balance sheet.

Reporting equity: the statement of changes in equity shows change in a company’s equity, change in retained earnings over a specific period of time. links the income statemonet and state of financial position. provides this link by including net profit or loss in the calculation of retained earnings, which is then reported on the statement of financial position.

Basic structure of the statement of changes in equity

 this statement
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