Basic Assumptions/ Principles Underlying Financial Statements

Cost Principle

requires assets to be recorded at original cost as it is verifiable, based on going concern assumption

Fair Value Principle

If and only if assets are actively traded (such as certain investments securities), record assets at their fair market value

Periodicity Assumption

allows the business to be divided into artificial time periods

Going Concern Assumption

assumes business will be in existence long enough to carry out goals, allows use of cost when recording assets.

Monetary Unit Assumption

only transactions expressed in monetary terms are included in accounting records

Full Disclosure Principle

requires disclosures of all circumstances and events that would make a difference to financial statement users.

Economic Entity Assumption

requires economic activities of an entity be kept separate from those of the owner and separate from all other economic entities.