Economic Entity Assumption
Definition
The convention that a business's transactions are kept separate from those of its owners and other businesses. It is why personal and business finances must not be mixed in the accounts.
Related Terms in Accounting Principles
Monetary Unit Assumption
The convention that only transactions measurable in a stable monetary unit are recorded, and that the currency's value is treated as reasonably stable over time. Non-monetary factors, however important, are not booked.
Time Period Assumption
The convention that a business's life can be divided into regular reporting periods so performance can be measured and compared, even though many activities span period boundaries.
Accounting Standards
The authoritative rules governing how transactions are recognised, measured and disclosed in financial statements, such as IFRS, US GAAP and national standards. They make financial reports consistent and comparable.
Golden Rules of Accounting
Traditional rules for recording entries by account type: debit the receiver and credit the giver (personal), debit what comes in and credit what goes out (real), and debit expenses and losses and credit incomes and gains (nominal).
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