KEMBAR78
Chapter - 3 Basic Accounting Principles | PDF | Generally Accepted Accounting Principles (United States) | Accounting
Scribd
Upload
21 views3 pages

Chapter - 3 Basic Accounting Principles

Accounting principles are rules set by the Financial Accounting Standards Board (FASB) that companies must follow when reporting financial data, known as GAAP. The document outlines ten key principles of GAAP, including regularity, consistency, sincerity, and materiality, which guide accurate financial reporting. Additionally, it explains the double-entry bookkeeping system, where each transaction is recorded in at least two accounts as debits and credits that must balance.

Uploaded by

Rico
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
21 views3 pages

Chapter - 3 Basic Accounting Principles

Accounting principles are rules set by the Financial Accounting Standards Board (FASB) that companies must follow when reporting financial data, known as GAAP. The document outlines ten key principles of GAAP, including regularity, consistency, sincerity, and materiality, which guide accurate financial reporting. Additionally, it explains the double-entry bookkeeping system, where each transaction is recorded in at least two accounts as debits and credits that must balance.

Uploaded by

Rico
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Basic Accounting Principles

What Are Accounting Principles?

Accounting principles are the rules and guidelines that


companies must follow when reporting financial data.
The Financial Accounting Standards Board (FASB) issues a
standardized set of accounting principles in the U.S. referred to
as generally accepted accounting principles (GAAP).

10 Principles of GAAP

There are 10 general concepts that lay out the main mission of
GAAP.

1. Principle of Regularity

The accountant has adhered to GAAP rules and regulations as


a standard.

2. Principle of Consistency

Accountants commit to applying the same standards


throughout the reporting process, from one period to the next,
to ensure financial comparability between periods.
Accountants are expected to fully disclose and explain the
reasons behind any changed or updated standards in
the footnotes to the financial statements.

3. Principle of Sincerity

The accountant strives to provide an accurate and impartial


depiction of a company’s financial situation.

4. Principle of Permanence of Methods

The procedures used in financial reporting should be


consistent, allowing a comparison of the company's financial
information.
Basic Accounting Principles

5. Principle of Non-Compensation

Both negatives and positives should be reported with full


transparency and without the expectation of debt
compensation.

6. Principle of Prudence

This refers to emphasizing fact-based financial data


representation that is not clouded by speculation.

7. Principle of Continuity

While valuing assets, it should be assumed the business will


continue to operate.

8. Principle of Periodicity

Entries should be distributed across the appropriate periods of


time. For example, revenue should be reported in its
relevant accounting period.

9. Principle of Materiality

Accountants must strive to fully disclose all financial data and


accounting information in financial reports.

10. Principle of Utmost Good Faith

Derived from the Latin phrase uberrimae fidei used within the
insurance industry. It presupposes that parties remain honest in
all transactions.
Basic Accounting Principles

What do you mean by double-entry system of book


keeping?

• Double-entry bookkeeping is a method of recording


transactions where for every business transaction, an
entry is recorded in at least two accounts as a debit or
credit. In a double-entry system, the amounts recorded as
debits must be equal to the amounts recorded as credits.

You might also like