There are four basic assumptions in financial accounting. The first is the monetary unit assumption which states that a company can only report transaction information in financial records that can be expressed in a monetary amount. The next assumption is the economic entity assumption. This assumption states that the company’s financial information and activities need to be recorded separate from the owners and other entities. Next, the time period assumption tells companies to divide the economic life of their business into artificial time periods. And last, the going concern assumptions is an assumption that a company will stay afloat long enough to carry out all existing objectives (Weygandt, Kimmel, Kieso, 2008). Financial accounting also consists of 4 principles; revenue recognition, matching, full disclosure, and the cost principle. These principles are “rules” of sorts that accounting must follow in their records. They state that companies should recognize their revenue during the time period that it was earned, they must match their expenses with their revenues during the period in which the effort to generate the revenue was made, they must disclose any circumstance or events that would make a difference to those using the reports, and they must record their assets at the price that it cost them (Weygandt, Kimmel, Kieso, 2008). There are also constraints that allow the company some leeway with the principles as long as it does not affect the usefulness of the data in the reports. The first is known as materiality, which is an items impact on a company’s overall financial condition and the second is conservatism, which states that when they are in doubt, they should use a method that is least likely to overstate their income and assets (Weygandt, Kimmel, Kieso, 2008). Following these assumptions and principles is essential to having accurate and