Accounting Assumptions, Principles, and Constraints

The four assumptions used by an accountant are accounting entity, money measurement, going concern, and accounting period. The accounting entity is an assumption that allows the accountant to separate the business transactions from the owner’s transactions. Dealing with the money measurement, “This assumption requires use of monetary unit as a basis of measurement, i.e., the currency of the country where the organization is to report its operations” (HubPages, 2012, pg. 1). Going concern means the business base its operations on future events. The accounting period is the time that the information is prepared and reported on a quarterly or annually bases.

The accounting principles consist of four basic parts they are the historical cost principle, matching principle, revenue recognition principle, and full disclosure principle. When dealing with historical cost principle the assets are altered if changes occur in the market value but no adjustments are made. Matching principles compare the revenues and expenses that was earned and occurred within that time period. Revenue recognition principle takes place when a business has all the revenue needed. The information is reported under the earned column on the books. The full disclosure principle is kicks in when the information concerning business entity is written in a comprehensible form.

Constraints of accounting are based on “The limitations to providing financial information that exist in the financial reporting environment. Financial reporting must follow the generally accepted accounting principles, or GAAP” (Jay Way, eHow, 2011, pg.1). The constraints allow companies to alter established accounting principles without lessening the practicality of the reported information.

In conclusion, the principles, assumptions, and constraints are tools used