33:010:272 Lecture Notes - Lecture 1: Accounting Equation, Accounts Payable, Income Statement
15 Sep 2016
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Historical cost principle (or cost principle) dictates that companies record assets at their cost. Fair value principle states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability. Selection of which principle to follow generally relates to trade-offs. Monetary unit assumptions requires that companies include in the accounting records only transaction data that can be expressed un terms of money (e. g. morale of employees, quality of service are not included) Economic entity assumption requires that activities of entity be kept separate and distinct from the activities of its owner and all other economic entities. Proprietorship: generally owned by one person, often small service-type businesses, owner receives profits and suffers any losses. Partnership: owned by two people, often retail and service businesses, generally unlimited personal liability. Corporation: ownership divided into shares of stocks.
