Concept: unit of measurement

All business transactions are recorded in a common unit of measurement— the dollar.

Accounting records are used to prepare financial reports. Reports would not be clear if some information were reported in dollars and some in Swiss francs. In the United States, a business' financial information is reported in dollars, a common unit of measurement. In Ukraine, a business’ financial information is reported in Hrivnas, our nation's common unit of measurement.

Also, a count of items owned is not a good common unit of measurement. Some items are counted as single items, such as one truck and five tractors. Other items may be counted as single items or groups of items, such as twelve eggs or one dozen eggs. A business would have difficulty in figuring its worth from a record showing only a unit count of items owned.

CONCEPT: Realisation of Revenue

Revenue from business transactions is recorded at the time goods or services are sold.

Some businesses sell goods or services for cash only. Other businesses sell goods or services on one date and receive payment from customers on a later date. Judy Calhoon buys a dress for $75.00 on September 1. She pays the store on October 1. The store records the sale on September 1, not on October 1 when the cash is received.

CONCEPT: Matching Expenses with Revenue

Revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period.

Joyce McPherson operates a public accounting firm and uses a monthly accounting period. In February she spends $150.00 for gasoline used while driving back and forth to clients' businesses. She also spends $360.00 for supplies. These amounts are expenses of her business. Ms. McPherson receives $700.00 for her services to clients. She should record the revenue, $700.00, and the expenses, $510.00, in February, the same accounting period. Ms. McPherson's February financial statements must show how much she earned and how much it cost her to earn the revenue.