"Rules of the Road" should be followed in preparing financial data - There are concepts and pinciples that apply for all businesses.

"Rules of the Road" should be followed in preparing financial data - There are concepts and principles that apply for all businesses.

BUSINESS -ENTITY CONCEPT
A business should be a separate entity from the owners of the business. Personal items or assets should be listed as business assets. Records and transactions of the business are separate.

CONTINUING -CONCERN CONCEPT
The business will continue to operate. This concept allow all business assets (property) to be recorded at cost and remain at that figure no matter what the market value may be. If the company were to be sold, the assets of the company would be valued at market to determine the selling prices of the business.

TIME-PERIOD CONCEPT
This divides the business into equal periods of time, such as month, a quarter, or a year.

COST PRINCIPLE
Assets are carried on the financial statements of the company at cost. In most cases, COST is what is paid for the asset. However, if the file cabinet used at your home was then brought into the business, it would be recorded at what the business would have paid for a used file cabinet.

MATCHING PRINCIPLE
If earnings and expenses are to be compared in an accounting period, the need to be recorded when one benefits the other. The income from September is matched with the expenses for September.

CONSISTENCY PRINCIPLE
Methods and procedures need to be kept the same over time. This principle allows for better comparison of at a collected in business. If methods and procedures are changed, the business must show this change, and the effect of this change on the financial statements.