1. Business Entity
All the business transactions of a sole proprietorship shall be recorded separately from the business owner's personal transactions. For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities.
2. Monetary Unit
Economic activity is measured in currency unit, so that all the business transactions shall be recorded in currency unit.
3. Periodicity
All the transactions shal be allocated and recorded to a given period of time. If cover several periods, they must be allocated and recorded proportionally based on the period of time.
The term "cost" refers to the amount spent (cash or the cash equivalent) when an item was originally obtained or acquired, whether that purchase happened now or last couple period of time. For this reason, the amounts shown on financial statements are referred to as historical cost amounts.
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Any important information that is significantly influencing the users of the financial statements in making economic decision shall be disclosed within the financial statement or in the notes to the financial statement.
6. Going Concern or Continuity
It assumes that a business entity will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
7. Matching Cost against Revenue
The matching cost against revenue principle requires that expenses shall be matched with revenues. For example, if a company agrees to give its employees 1% of its 20xx revenues as a bonus on January 15, 20xx, the company should report the bonus as an expense in 20xx and the amount unpaid at December 31, 20xx as a liability. (The expense is occurring as the sales are occurring.)
8. Revenue Recognition
Base on the accrual basis of accounting, revenues are recognized as soon as a product has been sold or a service has been performed, regardless of when the money is actually received.
For example, if ABC Consulting completes its service at an agreed price of $1,000, ABC should recognize $1,000 of revenue as soon as its work is done—it does not matter whether the client pays the $1,000 immediately or in 30 days. Do not confuse revenue with a cash receipt.
9. Materiality
Any material transaction shall be considered and reported. A transaction is considered material when it effects in the economic decision making.
10. Conservatism
Assets and incomes usually reported least likely to overstate. It means "potential losses are losses but potential gain is not gain". For example, potential losses from lawsuits will be reported on the financial statements or in the notes, but potential gains will not be reported.
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