Assumptions, constraints, principles Flashcards
1
Q
What is the seperate entity assumption
A
- assumed to include only that business’s activities
2
Q
Define unit of measure assumption
A
- should be reported in appropriate monetary unit
3
Q
Define time period assumption
A
- long life of company is divded into shorter time periods such as months, quarters and years
4
Q
Define going concern assumption
A
- is assumed to be capable of continuing operations long enough to meet its obligations
- aka contuinity assumption
5
Q
Define historical cost principle
A
- assets and liabilites are to be recorded at their original cost to company
6
Q
Define revenue recognition principle
A
- under accrual basis accounting, to record revenue in the period it is earned
7
Q
Define full disclosure principle
A
- should present information needed to understand the financial results of the company
8
Q
Define conservatism constraint
A
- using the least optimistic measures when uncertainty exists about the value of an asset or liability
9
Q
Define materiality constraint
A
- relatively small amounts not likely to influence decisions are to be recorded in the most cost-beneficial way
10
Q
Define cost-benefit constraint
A
- benefits to users should outweigh costs of providing information
11
Q
Define assets.
A
- resources currently owned by a business that will generate future economic benefits.
12
Q
Define liabilities
A
- probable future sacrifices of economic resources
- amounts currently owed by business
13
Q
Define shareholders equity
A
- financing provided by owners and operations
14
Q
Define revenue
A
- amounts earned by sellings googs or services
- increase in assets or settlement of liabilites from ongoing operations
15
Q
Define expenses
A
- cost of business necessary to earn revenues
