Full Disclosure Principle
When an investor or lender wants to use financial statements, a given amount of information should be disclosed to them. This information is located within the notes or statement itself. The essence of such is given that financial statements include footnotes that are considered pertinent to them and financial reporting.
Cost Principle
The cost of an item, from the viewpoint of an accountant, refers to the amount spent in cash or its equivalent to purchase a given item. Even if the purchase occurred a month or a hundred months ago, it is still considered to be the cost of the item. It is for this reason that accountants are compelled to depict on a financial statement the historical cost amount of any item the company purchased.
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Time Period Assumption
The principle behind this is the assumption of the possibility to report ongoing and complex activities regarding a business in periods that may be termed as distinct, such as four-moth considerations. Short intervals may imply that an accountant is compelled to work more toward the disclosure of information that pertains to that period. Thus, the statement of cash flows, stockholders’ equity, and income statement should have time intervals.
Monetary Unit Assumption
The U.S. dollar is a metric in the United States deployed to measure economic activity. As such, records may only be expressed in this currency before they are recorded. The assumption is that the dollar’s purchasing power does not fluctuate with changes in time.
Economic Entity Assumption
All transactions in a business are kept as a sole proprietorship from the personal transactions of the business owner. The separation of these is that the owner and sole proprietorship are a single entity for legality but then distinct from an accounting viewpoint.
