Please subscribe our Youtube Learning Channel

Tuesday, 29 May 2012

// // Leave a Comment

Accounting Principles

Generally accepted accounting principles are based on some underlying concepts often referred to as the basic accounting principles or fundamental accounting principles. Some of the basic principles and concepts are presented here:-

Cost or historical cost transactions are recorded at their cost (cash or cash equivalent at the time of the transaction) and generally the amounts are not changed as their market values change.
Matching costs are matched with revenues and to the period in which they are used up.
Full disclosure must report information that will make a difference to a decision maker.
Economic entity the accountant can keep an owner’s business transactions separate from the owner’s personal transactions.
Periodicity assumes that an ongoing business can be divided into discrete time periods such as years, quarters, months, etc. time period same as periodicity monetary unit assumes the purchasing power of the Rupees is constant; activities and assets can be expressed in Rupees.
Going concern assumption that a company will remain in business and will carry out its objectives and commitments.
Materiality if an amount is insignificant, an accounting principle could be violated, e.g. expensing a Rs.1500 printer immediately instead of depreciating it over its useful life.
Conservatism when doubt exists between two alternatives, choose the alternative with the lower profit and lower asset amount. Example: inventory valued at the lower of cost or market. industry practices often regulated businesses have unique reporting requirements, e.g. utilities report their plant assets before their current assets.
Comparability allows readers to compare different corporations’ financial statements; enhanced by accounting standards.
Consistency using the same method of accounting year after year.
Reliability dependable and free from bias.
Relevance will make a difference to a decision maker; timely.
GAAP generally accepted accounting principles; accounting standards including industry practices.


Post a Comment