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ECO358H5 Lecture Notes - Revenue Recognition, Current Liability, Net Income

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Need for financial statements; creditors, customers, investors, suppliers, managers.
Accounting used to keep track of daily business activities that affect the business
internally and externally. Internally would be any activities that impact the business that
does not involve other parties such as accruing expenses, depreciation and such.
Monetary unit – only things that can be measured in money should be used in
Economic entity – states that the business be treated as a separate entity from the owner.
Meaning only things that impact the business should be recorded. Anything used for
personal reasons should not interfere with daily business activities.
Time period – states that transactions should be recorded at the time that it occurred
Going on concern – assumes that the business will continue operating unless otherwise
Cost – states that all entries are recorded at cost meaning inflation and deflation should
not change the price. Also cannot record at a price that is an estimate of future value with
the impact of the market.
Full disclosure – only things that can be proven with objective evidence can be recorded
in the accounts. Such things like receipts, notes, contracts, and bills.
Revenue recognition – revenue should be recognized when earned not necessarily when
the money is receieved
Matching principle – states that revenues be matched with expenses.
Materiality – states that all items in the accountant’s book should have a significant
influence in the operations of the business. An item is considered immaterial if, without
it, there is no impact on the business. This is so that the financial statements are not
cluttered with useless information.
Cost-benfit – states that the benefits of providing the financial information be greater
than the cost of providing it.
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