BASIC ACCOUNTING PRINCIPLES
Accounting Principles. are the rules that an organization
follows when reporting financial information.
Accrual Principle. This is the concept that accounting
transactions should be recorded in the accounting periods
when they actually occur, rather than in the periods when
there are cash flows associated with them.
Conservatism Principle. This is the concept that you
should record expenses and liabilities as soon as possible,
but to record revenues and assets only when you are sure
that they will occur.
Consistency Principle. This is the concept that, once you
adopt an accounting principle or method, you should
continue to use it until a demonstrably better principle or
method comes along.
Cost Principle. This is the concept that a business should
only record its assets, liabilities, and equity investments at
their original purchase costs.
Economic Entity Principle. This is the concept that the
transactions of a business should be kept separate from
those of its owners and other businesses.
Full Disclosure Principle. This is the concept that you
should include in or alongside the financial statements of a
business all of the information that may impact a reader's
understanding of those statements.
Going Concern Principle. This is the concept that a
business will remain in operation for the foreseeable future.
Matching Principle. This is the concept that, when you
record revenue, you should record all related expenses at
the same time.
Materiality Principle. This is the concept that you should
record a transaction in the accounting records if not doing so
might have altered the decision-making process of someone
reading the company's financial statements.
Monetary Unit Principle. This is the concept that a
business should only record transactions that can be stated
in terms of a unit of currency.
Reliability Principle. This is the concept that only those
transactions that can be proven should be recorded.
Revenue Recognition Principle. This is the concept that
you should only recognize revenue when the business has
substantially completed the earnings process.
Time Period Principle. This is the concept that a business
should report the results of its operations over a standard
period of time.
OBJECTIVES OF FINANCIAL REPORTING
Provide Useful Information. The first objective is to provide
useful information to the users of financial reports. The
information should be useful from a number of perspectives,
such as whether to provide credit to a customer, whether to
lend to a borrower, and whether to invest in a business. The
information should be comprehensible to those with a
reasonable grounding in business, which means that it
should not be laced with jargon or burdened with so much
detail that it is impossible to extract the essentials about a
business from its financial statements.
