Intro to Financial Accounting
Intro to Financial Accounting ACC 225
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This 2 page Class Notes was uploaded by Cleo Abernathy DVM on Monday October 12, 2015. The Class Notes belongs to ACC 225 at Fort Lewis College taught by Staff in Fall. Since its upload, it has received 6 views. For similar materials see /class/221856/acc-225-fort-lewis-college in Accounting at Fort Lewis College.
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Date Created: 10/12/15
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 6AAP Jan 2005 Business entity concept A business is viewed separate and distinct economic unit from its owners Accounting draws a boundary around each organization to be accounted for And the personal transactions of the owners should never be mixed with the financial records of the business Example Family grocery store Going concern assumption It is assumed that a business will survive far into the foreseeable future that is long enough to be successful long enough to generate enough revenue to cover the cost of its resources Example 25000 delivery vehicle Money concept The yardstick or measuring unit in accounting is the dollar or some other monetary unit All financial transactions then are quantified and recorded at their dollar amount Assumption Economic information is quantified in monetary units Stable dollar concept The value of the dollar or other monetary unit used remains constant over time Assumption No inflation Cost principle Assets acquired or services or sales and expenses are recorded at their initial historical cost by a business organization Cost is maintained in the records until a sale or disposal despite fluctuations in the market price Example Land in Durango Principle of objectivity reliability Information in the accounting records should be based on the most reliable data available Most often this means using official market prices for determining the amount of a transaction rather than personal judgment or estimation The amounts should be verifiable from invoices receipts cash register tapes etc kept on file by the business Example Buying a music CD at WalMart Principle of periodic measurement The life of a business is divided into time periods of equal length months and years in order to determine whether a business was successful or not that is to determine of income was earned Accounting reports are generated at these regular intervals Example Has General Electric been successful Revenue realization principle Revenue is recognized as earned at the time of sale that is when legal possession of a good is exchanged or a service is performed Further the receipt of cash for the good or service is not required for recognition only the legal right to future payment Very important Example Supplier of bicycles selling on credit Matching principle Expenses are the resources consumed to generate revenue in a business Once revenues of a period are isolated the expenses used to generate this revenue must be subtracted from matched against it The result is net income or loss for the period Example Delivery service and gas hourly pay vehicle depreciation etc Principle of consistency In order to compare financial performance from period to period businesses should employ the same accounting procedures during each period Principle of materiality If a transaction or a transaction amount affects a business decision it is relevant and significant material Such a transaction or amount requires strict adherence to proper accounting procedures Insignificant transactions and amounts may be recorded as is most expedient convenient Example screw driver depreciation Principle of conservatism Potential losses should be recognized in the accounting records as soon as they are foreseen Alternately potential gains are not recognized until they occur that is until they are realized Example lawsuits versus sales contracts Principle of full disclosure A company39s financial statements should report enough information for outsiders to make informed decisions about the company This is accomplished through the footnotes which accompany the financial statements and by parenthetical information inserted within the statements themselves
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