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the
preparation
of
financial
statements.
The
following accounting rules and assumptions dictate what, when and how to
measure financial items.
These rules were created by the Financial Accounting Standards Board
(FASB) and are called General Accepted Accounting Principles (GAAP).
GAAP refers to the standard guidelines for financial accounting used in any
given jurisdiction. GAAP includes the standards, conventions, and rules
accountants follow in preparing and reporting financial statements.
The
2. Going Concern Accounts assume that the life of the business entity
is infinitely long and will never dissipate. In some cases, if there is a
clear sign that a business may go bankrupt, the accountant must issue a
qualified opinion stating the potential of a demise.
3. Measurement Accounting only deals with things that can be
measured, quantifiable. Therefore, aspects that are crucial to profits
may be overlooked such as customer loyalty.
4. Units of Measure The US Dollar (USD) is the standard value used in
financial statements for companies in the United States. Any foreign
transactions must be translated to USD based on the current exchange
rate.
5. Historical Cost The transactions that results in what a business owns
and owes are recorded at their original cost. This may cause the
companys books to be understated. For example, a company can own
a manufacturing facility that is valued at $25,000,000 but carry it on the
books for their purchase price of $7,000,000.
Accountants
must
agree
more
with
an