The monetary unit concept or monetary unit assumption one of the fundamental accounting principles, and states that only transactions which involve a monetary amount are recorded in the financial statements of a business.
Category: Accounting Principles
The economic entity concept or business entity concept is one of the fundamental accounting principles, and states that a business is a separate entity from its owners. In practice this means that a business must keep separate financial records, which only include accounting transactions relating to the business.
Qualitative characteristics are part of the accounting framework and are attributes which enable financial information to be useful to users.
Accounting constraints sometimes referred to as modifying principles, are used to modify accounting assumptions and accounting concepts to make accounting information in financial statements more useful for users.
Financial statements are multipurpose documents used by many different parties for different reasons. For this reason financial statements need to be based on a generally agreed accounting framework or structure so that all parties understand how they are produced. Accounting assumptions can be considered to be the foundations on which the framework is based.
Double entry bookkeeping is the first stage in producing a set of financial statements for a business.
For the financial statements to be useful the users (the bank manger, tax authorities, owners, investors, etc) need to have agreed and understand how they were compiled from the underlying information, these understandings form the principles of accounts.
Take our basic accounting principles test to check out your knowledge of the accounting concepts and assumptions used in double entry bookkeeping.
The accounting assumptions are supplemented by a number of accounting concepts, which act as guides on how particular business transactions should be reported in financial statements, and allow them to be objective (not subject to bias or influenced by personal feelings or opinions).