Accounting equation

The accounting equation expresses the logical structure of the accounting transactions (bookkeeping) database.

Measuring in original (historic) cost

Transaction values are based on prices paid thus providing an objective and verifiable, but sometimes economically outdated or misleading figure. (Revaluation or adjustment of values is very rarely allowed)

Money measurement

Only items that can be measured in money (as evidenced by monetary transactions) are recorded in the accounts. Money measures can be used to aggregate and summarise disparate activities.

However, the effects of inflation and foreign currency fluctuations (for international operations) can present serious problems.

Going concern

It is assumed that the company will continue in operation indefinitely so valuations are based on transactions conducted in the course of normal trade. Accounts do not purport to show the realisable market value of the company, or parts of it, that might arise if the company were sold as an ongoing investment, or its assets liquidated.