Econ 136A Ch 1

Economic Entity

Economic events can be identified with a particular unit of accountablity

Going Concern

The business will continue its operation long enough to carry out its existing objectives and commitments

Monetary Unit

Only transaction data that can be expressed in terms of money should be included in the accounting records

Periodicity (time period assumption)

The economic life of a business can be divided into artificial time periods

Historical Cost

Assets should be recorded at their cost

Revenue Recognition

Requires that companies recognize revenues as it is earned

Matching (expense recognition)

Let the expenses follow the revenue

Full Disclosure

 Information that can make a difference in the users’ judegement and understanding of the financial statements must be disclosed

Predictive value

helps users from their own expectations about the future

Confirmatory value

helps users confirm or correct prior expectations

Materialtiy

dependent on company size (is it relevant)

Completeness

all information necessary for faithful representation is provided

Neutratily

Company cannot select biased information

Free from error

A more accurate of representation of financial item

Comparabilitiy

enable users to identify similarities and differences between companies

Consistency

when company applies the same accounting treatment to similar vents

Verifiability

independent measures obtain similar results

Timeliness

having information available on time

Understandability

information is presented clearly and concisely