Accounting Principles, Assumptions, Constraints

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Name the principle, assumption or constraint

Is the rationale for why plant assets are not reported at liquidation value. (Dont use the cost principle)

Going Concern assumption

Indicates that personal and business record-keeping should be separately maintained

Economic Entity Assumption

Ensures that all relevant financial information is reported

Full disclosure principle

Assumes that the dollar is the "measuring stick" used to report on financial performance

Monetary unit assumption

Requires that accounting standards be followed for all significant items

Materiality constraint

Separates financial information into time periods for reporting purposes

Periodicity assumption

Requires recognition of expenses in the same period as related revenues

Expense recognition principle

Indicates that fair value changes subsequent to purchase are not recorded in the accounts

Cost principle

Ability to easily evaluate one company's results relative to another's

Comparability

Belief that a company will continue to operate for the forseeable future

Going concern assumption

The judgment concerning whether an item is large enough to matter to decision makers

Materiality constraint

The reporting of all information that would make a difference to financial statement users

Full disclosure principle

The practice of preparing financial statements at regular intervals

Periodicity assumption

The quality of information that indicates the information makes a difference in a decision

Relevance

A belief that items should be reported on the balance sheet at the price that was paid to acquire the item

Cost principle

A company's use of the same accounting principles and methods from year to year

Consistency

Tracing accounting events to particular companies

Economic entity assumption

The desire to minimize errors and bias in financial statements

Faithful representation

Reporting only those things that can be measured in dollars

Monetary unit assumption

Items not easily quantified in dollar terms are not reported in the financial statements

monetary unit assumption

Accounting information must be complete, neutral, and free from error

Faithful representation

Personal transactions are not mixed with the company's transactions

Economic entity assumption

The cost to provide information should be weighed against the benefit that users will gain from having the information available

cost constraint

Assets are recorded and reported at original purchase price

cost principle

Accounting information should help users predict future events, and should confirm or correct prior expectations

relevance

the life of a business can be divided into artificial segments of time

periodicity assumption

the reporting of all information that would make a difference to financial statement users

full disclosure principle

different companies use the same accounting principles

comparability

measurement basis used when a reliable estimate of fair value is not available

cost principle

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