The Entity Concept Of Accounting - 1520 Words

The Entity Concept in accounting states transactions associated with one business or entity must be separate from additional businesses owned by the same person. This requires separate books, accounts, assets, liabilities and anything separately associated with each business. This concept is imperative as it is required by federal law and GAAP principals. B. Reliability Principal The reliability principle is the concept of only recording those transactions in the accounting system that you can verify with objective evidence( Reliability principal, 2015). This evidence is stated as checks, receipts, bank statements, purchase orders and anything which can prove the transactions actually happened. It is key to consider gathering documents and information from customers, vendors and external forces as they can help validate your businesses own documentation. This principal is crucial to help elevate potential misunderstood transaction and provide accurate information to the powers at be. C. Cost Principal The Cost Principal or Historical Cost requires a business to record the cash value of its assets at the time the asset was purchase. This is imperative as to show internal and external users what impact the asset had on the company in a financial aspect. A special exceptions to this principal are those transaction that were recorded as credit sales with potential of not receiving the full payment. If a company records a $500 sale and only expects to receive payment of $400,Show MoreRelatedThe Reporting Entity Concept Of The Australian Accounting Standards Board1027 Words   |  5 PagesReporting Entity Concept makes up part of the Australian Accounting Standards Board (AASB) Conceptual Framework and has been in use since its inception in Australian Accounting Standards in the early 90s (Hamidi-Ravari, 2014). 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