Principles Of Accounting: Accounting And Financial Management

explanatory Essay
850 words
850 words

BAF 301
Accounting and financial management
Assignment 1

Mohammad Gholamali

Dr. Suja Sarah Thomas
Colleague of Electrical Electronics Engineering
In this report I am going to write some of the important principle and assumption and guidance used to prepare accounting statements.
In the world of business there are some general rules and principles which the universe of accounting uses them as a general guidance. There are some international framework like Financial accounting Standards Board (FASB) that are consists of a set of rules which is used in recording and preparing accounting statements.

All of the accountants in the world follow generally accepted accounting principles (GAAP) as guidance for reporting financial statements. If one of the companies would like to share its financial statements for public, the company has to follow the generally accepted accounting principles for preparing its financial statements. Also if the company is trading its stocks to the public it is necessary for the company to notice its financial statements for other independent public accountants.

GAAP is very useful for all the accountants and its role is to regulate and standardize accounting definition, assumption and method. As we pass the time the generally accepted accounting principle becomes more complicated and complex this is all because of complex financial transactions.
Here is a list of some main accounting principles and guidelines which we are going to mention them below:
Economic Entity Assumption

Business transaction of business owner’s should be separate from a sole proprietorship transaction. For purpose of legality they are considered to be one entity but for purpose of accounting they should ...

... middle of paper ... For example if we have agreed with the ACD consultant to do the service for $10000, therefore this amount should be mentioned as $10000 revenues of ACD company even if he did not pay money.

By the end of this report we get to know more about the principles and assumptions used in preparing accounting statements. By using this assumption and principles of accounting we can be a good accountant who knows how to write a proper financial statement. Moreover using these assumptions are essential in preparing a financial statement of any company.


In this essay, the author

  • Argues that business transaction of business owner’s should be separate from a sole proprietorship transaction.
  • Explains the basic accounting principle that the company can report the cash amount as an account receivable even if the client did not pay money.
  • Describes the principles and assumptions used in preparing accounting statements by the end of the report.
  • Explains the principles and assumptions used to prepare accounting statements in the world of business, including the financial accounting standards board and gaap.
  • Explains that the economic activity should be measured in u.s dollars, and only the transactions which are measured are recorded. the accounting principle assumes the dollar's purchasing value remains the same over a long time.
  • Explains that in the financial statement of each company the word "cost" refers to the money spent to buy the product or to purchase any item.
  • Explains the principle of accounting that many pages of "footnotes" are attached to financial statements.
  • Explains the accounting principle that a company will continue to exist long enough to carry out its goal and will not be liquidated in the near future.
  • Explains that companies are required to follow the accrual basis of accounting, which states that expenses should be matched with revenues.
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