Accounting has been around for thousands of years and it still isn’t perfect, so it continuously evolves towards standardizing and simplifying methods for all users.
Some argue that accounting developed purely in response to the needs of the time brought about by changes in the environment and societal demands. (John R. Alexander 2002) So, whatever “time” that was morphed into all the time didn’t it!
Furthermore, It would be easy to become lost in the sauce with principles, financial jargon, and the many details within financial statements, however here we will break it all down in a natural fashion.
The accounting system for setting up, maintaining and auditing ...view middle of the document...
S. dollars for acknowledging monetary values. For Samsung this became a chore, because even though the website and statements were in English, the numbers were all won (₩).
Economic entity assumption in accounting must not include owner assets or liabilities within financial statements. In addition, each entity must be separately maintained. This ultimately saves the owner from losing everything in a downward event.
Full disclosure principles are usually found within the footnotes of a financial statement to describe the “fine print” explaining policies in which the company performs record keeping and reporting such business transactions.
Accrual basis accounting records transaction at the time they occur which keeps financial statements up to the minute rather than deferring transactions for a later date. An advantage to this is that it makes it easier to determine the overall financial health of a company. This would alleviate any required calculations of future or past services.
Accrual basis accounting goes hand in hand with revenue recognition principle where the transaction or revenue is recognized when the merchandise exchange is made.
Matching principle recognizes profits as the revenue is honored. This is relevant to revenue recognition and accrual basis (above) in that when the goods are recorded from an asset to an expense at the point of the goods exchanging ownership. Not when the payment is received.
Cost principle shows assets recorded at cost, which is arguable when referencing appreciation. In example would a be an office building that was purchased in 1940, would be worth much more in 2011 than the original purchase price. However, with cost principle we only record the actual purchase price regardless of its current value.
Going concern principle is broken down in to two categories; short-term (current) and long term assets and liabilities. Both teeter on time, one year or less than one year, with less than one year being short term and vice versa.
Relevance, reliability and consistency. Relevance refers to a company’s past performance, present condition and future outlook so that informed decision can be made in a timely manner. (Cliffs Notes) Reliability is verifiable data. Consistent information shows that each statement mirrors that last, there is a need for dependability when going from one report to the next.
Principle of conservatism is using a more pessimistic approach in judgment calls. For example, you have received comparable estimates from two companies and must choose one moderately.
Lastly, materiality principle within the GAAP model does not implement the provisions of an accounting standard if an item is immaterial. This last principle is dependent on the size of the business. Larger businesses are able to ignore petty expenditures such as a desk chair, where a smaller family business cannot. These principles are made with experienced and sound decisions where values are often...