Accounting Assumptions, Principles, and Constraints

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  • Topic: Business, Economics, Money
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  • Published : November 30, 2011
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Accounting Assumptions, Principles, and Constraints


Accounting Assumptions, Principles, and Constraints
The basic assumptions of accounting include the monetary unit assumption and economic entity assumption. The monetary unit assumption is described as what companies require as only transactional data that can be expressed in terms of money (Weygandt, Kimmel, & Kieso, 2008). The purpose of the monetary unit assumptions is to only reflect the financial impact of the business. An economic entity assumption can be any unit or organization within a society which requires that the activities of the entity be kept separate and distinct from the activities of the owners and all other economic entities, ensuring transactions between businesses or personal and business activities are kept separate (Weygandt, Kimmel, & Kieso, 2008).

The U.S. has a recognized set of standards in accounting called generally accepted accounting principles (GAAP). The standards set forth from the GAAP include specific rules indicating how economic events should be reported in the accounting process (Weygandt, Kimmel, & Kieso, 2008). The principles of accounting ensure that every organization is held to the same standard on what accounting information and data is expected of them depending on the type of organization they are. There are constraints of accounting which consist of certain activities within a business can be modified as long as those activities do not reduce the usefulness of the reported information (Weygandt, Kimmel, & Kieso, 2008). Constraints are meant to differentiate from relevant information that will affect the reporting process.

The GAAP includes does depend on principles, assumptions, and constraints for sound financial reporting. The GAAP uses these accounting principles because such standards were needed to be established for the purpose of holding organizations responsible for truthful and relevant documentation and records of...
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