Fundamental rule of accounting

Fundamental rule of accounting

Auditors should remain independent and work in the interest of investors and redirectors (provide assurance of accuracy) Fundamental rule of accounting— accuracy Internal auditors-”make sure things work smoothly in the company. 5-year- rule-”partners and clients GAP-”rule-based-particular provision FIRS-”principle-based, here is the general outcome we expect, use your best judgment Materiality-”The materiality principle states that you are allowed to ignore an accounting standard if the net impact of doing so has such a small impact on the financial statements that a reader of the financial statements would not be misled.

Historical cost–A measure of value used in accounting in which the rice of an asset on the balance sheet is based on its nominal or original cost when acquired by the company. The historical-cost method is used for assets in the U. S. Under generally accepted accounting principals (GAP). Investigated explains ‘Historical Cost’ Based on the historical-cost principle, under U. S. GAP, most assets held on the balance sheet are to be recorded at the historical cost even if they have significantly changed in value over time.

For example, say the main headquarters of a company, which includes the land and building, was bought for $100,000 in 1 925, and its expectorated alee today is $20 million. The asset is still recorded on the balance sheet at $100,000. Not all assets are held at historical cost. For example, marketable securities are held at market value on the balance sheet. Depreciation is not the decline in the value of an asset, but it is the allocation of cost of an asset over its useful life.

Fair value (fair market value) is different from net book value (book value-depreciation). Conservatism: recognize all losses and anticipate no gains Conservatism vs… Fair value accounting is gaining more importance Regarding accounting cycle-”reading chapter 3 in accounting textbook Accounting cycle: At the beginning of accounting cycle, income statement roll into the balance sheet. The end of year 1 is the beginning of year 2.

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