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Accounting Principles
Financial Statements must abide by several principles. Collectively, these are called the Generally Accepted Accounting Principles (GAAP). They include the Business Entity Principle, the Objectivity Principle, the Cost Principle, and the Going-Concern Principle.
1. The Business Entity Principle requires every business to be accounted for separately from the owner. Personal and business-related transactions should not be mixed.
2. The Objectivity Principle requires that the information contained in financial statements be objective and not based on opinion.
3. The Cost Principle requires that the information contained in financial statements be based on costs incurred in business transactions.
4. The Going-Concern Principle assumes that the business will continue operating and will not close or be sold.