The stable dollar concept requires reporting of accounting information in dollar units which remain stable in value with no adjustment for inflation or the purchasing power of money. The accounting period concept requires that financial reports showing changes in financial position be produced at fixed annual reporting periods. The cost principle requires that all costs be recorded at the actual acquisition cost regardless of what the asset acquired might be perceived as being “worth.” The cost recorded is the actual exchange price. The objectivity principle requires that costs be objectively established and verifiable: guesses or estimates are not acceptable. The revenue recognition principle requires that revenue be entered in the accounting records only at the time it is earned and not before. The matching principle requires that expenses be matched with the revenue they produced. The full disclosure principle requires that no significant information be omitted or concealed and that statements be prepared in accordance with generally accepted accounting principles. The materiality principle provides for an exception from full disclosure for transactions with insignificant economic effect. The consistency principle requires that the same accounting principles be followed from period to period to allow for comparison of financial performance. The conservative principle requires that in presenting financial information, accounting procedures should be used which present the least favorable view of the firm’s owners’ equity. These concepts and principles taken together produce a periodic picture of the financial position of the business expressed in constant dollars. While all the information which goes into the system is “real,” the accounting principles used can change the way transactions are structured and reported and the effects – like tax consequences – of the transaction. In addition, an accounting system imposes a set of internal controls on the business to ensure appropriate and consistent control of financial operations. As noted above, the substance of any accounting system will vary with the size, complexity and sophistication of the business. The choice of an accounting system, the use of bookkeeping services or broader accounting services, and the use of mechanical or computerized systems or recordkeeping aids are best discussed with an accounting professional.
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