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THE CONCEPTUAL FRAMEWORK (PART 1B: THE ACCOUNTING PRINCIPLES) - Coggle…
THE CONCEPTUAL FRAMEWORK (PART 1B: THE ACCOUNTING PRINCIPLES)
The Cost Principle
justified both in terms of its objectivity and the going-concern postulate
acquisition cost is objective, verifiable information
the entity will continue indefinitely, therefore current values or liquidation values for asset valuation are not necessary
The Revenue Principle
the nature and components of revenue
the measurement of revenue
the timing of revenue recognition
The Matching Principle
expenses should be recognized in the same period as the associate revenues
association between revenues and expenses depends on one of four criteria
direct matching of expired costs with a revenue
direct matching of expired costs with the period
allocation of costs over periods benefited
expensing all other costs in the period incurred, unless they have future benefit
The Objectivity Principle
different interpretations of this objectivity
an objective measurement is an impersonal measure
an objective measurement is a very liable measurement
an objective measurement is the result of consensus among a given group of observers
the size of the dispersion of the measurement distribution may be used as an indicator of the degree of objectivity
The Consistency Principle
similar economic events should be recorded and reported in a consistent manner from period to period
makes financial statements more comparable and more useful
The Full Disclosure Principle
no information of substance or interest to the average investor will b omitted or concealed
enforced by various disclosure requirements
The Conservatism Principle
holds that when choosing between two or more acceptable accounting techniques, some preference is shown for the option that has the least favorable impact on shareholder's equity
The Materiality Principle
transactions and events having significant economic effects need to be disclosed
Two basic criteria:
size approach
change criterion approach
The Uniformity and Comparability Principle
consistency principles refers to the use of the same procedures for related items by a given firm over time
uniformity principles refers to the use of the same procedures by different firms
objective : to achieve comparability of financial statements
Principle support for uniformity
Principle support for flexibility