Accounting Assumptions, Principles and Constrains Essay

Accounting Assumptions, Principles and Constrains - Essay Example n that assumes that the economic entity has a significant past and future for purposes of recording costs of assets and inventory and decision making based on those costs in the present. Additionally, there are the Monetary Unit assumptions that keeps score with money, but it typically ignores inflation and deflation of currencies; the value and unit of currency are understood to be firm; otherwise, there is transaction with global divisions that uses other currencies besides the U.S. Dollar. Finally there is an accounting Periods assumption that assumes that the periodical accounting periods is applicable and accountants can stop to analyze financial statements. Historical Costs (assets and liabilities) characteristically report on the chronological cost and then adjusted to fair market value when the needs of reporting require it. However, the cost of assets went up some years thereby did not reflect what it is worth to other buyers or the cost of replacement. (Riahi-Belkaoui, 2005).   Revenue Recognition is the recording of revenues when they are realized and earned. (Pratt, J. 2011). This is one of challenge that accrual-based accounting is trying to solve. Notably, receiving cash from a sales order doesn’t mean that everything has to earn the revenue especially when they are shipped. In other words, it is sometimes possible to sell goods or services without receiving cash. Therefore, Matching Expenses to Revenues means matching fixed cost of the revenues or recording profit in the income statement based on the best profit on revenues and expenses. This often leads to Full Disclosure where accountants record and report every bit of information in the numbers and footnotes of financial statements that fairly represent the activities of the business entity in that accounting period. This procedure is perfect; however, for decision-making it is expected to leave out or add things that are relevant to the decision being made. In most cases, Cost and Benefit is