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8 Cards in this Set
- Front
- Back
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List all of the Accounting Principles (7) |
Consistency Historical Cost Entity Reporting Period Monetary Unit Conservatism Going Concern |
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Consistency Definition |
The accounting methods used by the business should be applied consistently from one reporting period to another. This allows valid comparisons of performance to be made. |
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Historical cost definition |
All transactions are recorded at their original value. Therefore, items are shown in the accounting records at their historical (original) price. |
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Entity definition |
The business must be a separate accounting entity from its owner and from other entities. It is important to identify for whom the preparation of financial reports is being conducted. A common illustration of the entity principle is seen in the way in which the business will have separate records from the owner. |
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Reporting period definition |
The ongoing life of a business is broken into regular intervals of time for the preparation of financial reports. Under accrual accounting, profit is revenue earned less expenses incurred in that period. |
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Monetary unit definition |
The monetary unit (e.g. Aus $) needs to stay consistent for all financial reports. |
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Conservatism definition |
It is acknowledged that gains will not be recognised until earned and losses will be recognised as soon as they are likely to occur. This principle is followed so as not to overstate assets and revenues and not understate liabilities and expenses. |
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Going concern definition |
It is assumed that the business will be ongoing, i.e. the business will have an infinite life. The purpose of this rule is so that a distinction can be made between assets, which will provide benefit to future reporting periods, and expenses that are totally consumes within one reporting period. |
