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Fundamental Accounting Principles, transactions and events are recognized,…
Fundamental Accounting Principles
Going Concern
the assumption
an entity will remain in business for the foreseeable future
a business will continue its operation without the threat of liquidation for the foreseeable future
the entity has neither intention nor the need to liquidate or curtail materially the scale of its operations
accrual basis of accounting
except for the statement of cash flows
an entity recognizes the elements of financial statements
when they meet the definition and recognition criteria in the Framework
items such as
assets
liabilities
income
expenses
non cash accounts
Accounts receivable
make sales on credit
cash is received later
sales is recorded in
Accounts payable
make purchases on credit
payment is made later
the amounts is recorded in
Prepaid expense
covers product or services are paid for ahead of time
example
purchase insurance policies require a year or more advance payment
records this payment as
allocate it to their expense accounts in monthly increments
Business Entity (Economic Entity)
the activity of a business is separate from the personal activities of the owners and employees
based on
incorporated business entities are separate legal entities from their owners
every business is a distinct entity
Accounting Period
division of the life of entity into equal time intervals
the period assumption
Conservatism
account for the most-likely scenario rather than the most optimistic scenario
Objectivity
only use verifiable numbers
not allow
feelings
opinions
all records must be accurate and unbiased
Full Disclosure
record include all available
nothing is withheld or hidden
transactions and events are recognized
presented in FS in the period when they occur
they are recorded in the accounting records
not when cash is received or paid
transactions associated with a business must be records separately form those of its owners
to influence the records