The Objectivity Principle

The Objectivity Principle

• The objectivity principle states that accounting will be recorded on the basis of objective evidence, i.e. different people looking at the evidence will arrive at the same values for the transaction, and accounting entries will be based on fact and not on personal opinion or feelings.
• The source document for a transaction is almost always the best objective evidence available.

Stable-Dollar Assumption

• A limitation of measuring assets at historical cost is that the value of the monetary unit or dollar is not always stable.
• Inflation- the situation where the value of the monetary unit decreases, i.e. it will purchase less than it did previously.
• When inflation becomes severe, historical; cost amounts for those assets lose there relevance as a basis for making business decisions