accounting principles.pdf

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1、1)Theobjectivityprinciplemeansthataccountinginformationissupportedbyindependent,unbiasedevidence.Itdemandsmorethanaperson’sopinion.Informationisnotreliableifitisbasedonlyonwhatapreparerthinksmightbetrue.Apreparercanbetoooptimisticorpessimistic.Theobjectivityprincipleisintendedtomakefi

2、nancialstatementsusefulbyensuringtheyreportreliableandverifiableinformation.Example:non-casheffectsoftransactionsandothereventstobereflected,asfarasispossible,inthefinancialstatementsfortheaccountingperiodinwhichtheyoccur,andnot,forexample,intheperiodinwhichanycashinvolvedisreceivedor

3、paid.2)Thecostprinciplemeansthataccountinginformationisbasedonactualcost.Costismeasuredonacashorequal-to-cashbasis.Thismeansifcashisgivenforaservice,itscostismeasuredastheamountofcashpaid.Ifsomethingbesidescashisexchanged(suchasacartradedforatruck),costismeasuredasthecashvalueofwhatis

4、givenuporreceived.Thecostprincipleemphasizesreliabilityandverifiability,andinformationbasedoncostisconsideredobjective.Example:supposeacompanypays$5,000forequipment.Thecostprinciplerequiresthatthispurchaseberecordedatacostof$5,000.Itmakesnodifferenceiftheownerthinksthisequipmentiswort

5、h$7,000.3)Revenue(sales)istheamountreceivedfromsellingproductsandservices.Therevenuerecognitionprincipleprovidesguidanceonwhenacompanymustrecognizerevenue.Torecognizemeanstorecordit.Ifrevenueisrecognizedtooearly,acompanywouldlookmoreprofitablethanitis.Ifrevenueisrecognizedtoolate,acom

6、panywouldlooklessprofitablethanitis.Threeconceptsareimportanttorevenuerecognition.(1)Revenueisrecognizedwhenearned.Theearningsprocessisnormallycompletewhenservicesareperformedorasellertransfersownershipofproductstothebuyer.(2)Proceedsfromsellingproductsandservicesneednotbeincash.Acomm

7、onnon-cashproceedreceivedbyasellerisacustomer’spromisetopayatafuturedate,calledcreditsales.(3)Revenueismeasuredbythecashreceivedplusthecashvalueofanyotheritemsreceived.Example:InDecember2009,AceLandscapingreceivedacustomer’sorderandcashprepaymenttoinstallsodatanewhousethatwouldnotbere

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