Fundamentals of Accounting: Principles, Assumptions, and Financial Statements

Ethics

Standards of conduct by which one's actions are just as right or wrong, honest or dishonest, and fair or unfair.

Measurement/Cost Principle

Companies should record assets at their cost and continue to hold them at cost over time.

Revenue Recognition Principle

Revenue is recognized as the performance obligation is satisfied (when earned) for the amount expected to be collected.

Expense Recognition Principle

Expenses are recorded in the same period as the revenues they generated.

Full Disclosure Principle

All circumstances and events that would make a difference to financial statement users should be disclosed.

Monetary Unit Assumption

Companies include only transaction data that can be expressed in money terms in accounting records.

Business Entity Assumption

Activities of the entity must be kept separate from those of its owner.

Going-Concern Assumption

The business will continue to operate rather than being closed or sold.

Time Period Assumption

Life of a business can be divided into time periods for reporting.

Basic Accounting Equation

Assets = Liabilities + Owners' Equity.

Asset

Resources a business owns that will provide future economic benefit.

Liabilities

Claims against assets. Existing debts and obligations.

Stockholders' Equity

Represent ownership of the assets (does not include those owed as liabilities).

Increase in Stockholders' Equity

Common Stock, Revenues, Gains.

Decrease in Stockholders' Equity

Dividends, Expenses, Losses.

Dividends

Distributions of cash or assets from the corporation to its stockholders. Dividends are NOT an expense and are not included in the calculation of net income.

Net Income

Revenue -- Expenses = Net Income; shown on the Income Statement.

Balance Sheet

Reports assets, liabilities, and equity accounts and their balance at a specified date.