What are principles of accounting?

There are three meanings come to mind when you ask about principles of accounting...

1.   Principles of Accounting was often the title of the introductory course in accounting. It was also common for the textbook used in the course to be entitled Principles of Accounting.

2.   Principles of accounting can also refer to the basic or fundamental accounting principles: cost principles, matching principles, full disclosure principles, materiality principles, going concern principles, economic entity principles, and so on. In this context, principles of accounting refers to the broad underlying concepts which guide accountants when preparing financial statements.

3.   Principles of accounting can also mean generally accepted accounting principles (GAAP). When used in this context, principles of accounting will include both the underlying basic accounting principles and the official accounting pronouncements issued by the Financial Accounting Standards Board (FASB) and its predecessor organizations. The official pronouncements are detailed rules or standards for specific topics.

Accounting Bestsellers Accountants' Guidebook Accounting Controls Guidebook Accounting for Inventory Accounting for Managers Accounting Procedures Guidebook Bookkeeping Guidebook Budgeting Business Ratios Guidebook CFO Guidebook Closing the Books Controller Guidebook Corporate Cash Management Cost Accounting Fundamentals Cost Management Guidebook Credit & Collections Enterprise Risk Management Financial Analysis Fixed Asset Accounting Fraud Examination GAAP Guidebook IFRS Guidebook Lean Accounting Guidebook MBA Guidebook Mergers & Acquisitions Payables Management Payroll Management Basic Accounting Principles A number of basic accounting principles have been developed through common usage. They form the basis upon which modern accounting is based. The best-known of these principles are as follows: 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. This is the foundation of the accrual basis of accounting. It is important for the construction of financial statements that show what actually happened in an accounting period, rather than being artificially delayed or accelerated by the associated cash flows. For example, if you ignored the accrual principle, you would record an expense only when you paid for it, which might incorporate a lengthy delay caused by the payment terms for the associated supplier invoice. 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. This introduces a conservative slant to the financial statements that may yield lower reported profits, since revenue and asset recognition may be delayed for some time. Conversely, this principle tends to encourage the recordation of losses earlier, rather than later. This concept can be taken too far, where a business persistently misstates its results to be worse than is realistically the case. 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. Not following the consistency principle means that a business could continually jump between different accounting treatments of its transactions that makes its long-term financial results extremely difficult to discern. Cost principle . This is the concept that a business should only record its assets, liabilities, and equity investments at their original purchase costs. This principle is becoming less valid, as a host of accounting standards are heading in the direction of adjusting assets and liabilities to their fair values. 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. This prevents intermingling of assets and liabilities among multiple entities, which can cause considerable difficulties when the financial statements of a fledgling business are first audited. 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 financial statements. The accounting standards have greatly amplified upon this concept in specifying an enormous number of informational disclosures. Going concern principle . This is the concept that a business will remain in operation for the foreseeable future. This means that you would be justified in deferring the recognition of some expenses, such as depreciation, until later periods. Otherwise, you would have to recognize all expenses at once and not defer any of them. Matching principle . This is the concept that, when you record revenue, you should record all related expenses at the same time. Thus, you charge inventory to the cost of goods sold at the same time that you record revenue from the sale of those inventory items. This is a cornerstone of the accrual basis of accounting. The cash basis of accounting does not use the matching the principle. 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. This is quite a vague concept that is difficult to quantify, which has led some of the more picayune controllers to record even the smallest transactions. 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. Thus, it is easy enough to record the purchase of a fixed asset, since it was bought for a specific price, whereas the value of the quality control system of a business is not recorded. This concept keeps a business from engaging in an excessive level of estimation in deriving the value of its assets and liabilities. Reliability principle . This is the concept that only those transactions that can be proven should be recorded. For example, a supplier invoice is solid evidence that an expense has been recorded. This concept is of prime interest to auditors, who are constantly in search of the evidence supporting transactions. Revenue recognition principle . This is the concept that you should only recognize revenue when the business has substantially completed the earnings process. So many people have skirted around the fringes of this concept to commit reporting fraud that a variety of standard-setting bodies have developed a massive amount of information about what constitutes proper revenue recognition. Time period principle . This is the concept that a business should report the results of its operations over a standard period of time. This may qualify as the most glaringly obvious of all accounting principles, but is intended to create a standard set of comparable periods, which is useful for trend analysis. These principles are incorporated into a number of accounting frameworks, from which accounting standards govern the treatment and reporting of business transactions.

Thank you for the invitation and the question:

Accepted accounting principles and generally accepted

 

1. historical cost basis: it is the recognition of the cost of the asset when you buy it, I mean the need for evaluation of the asset, according to its price on acquisition, so that is Alaltazampetkfatth and not its value, because the value of the asset can be changed depending on demand and services Almtoukahmenh, so is the recognition of its value when sold

 

2. The principle of full disclosure: Almalahotboebha after the completion of recording data (ie, migrated to the so-called "accounting books"), and processed in the financial statements, the results are obtained concerning the financial situation of the company, over the profits, losses, the extent of continuity. This paves for financial information Manmhldy financial decision-makers in the economic unit Kalmdra and investors in Dakhlacharkh or outside, it is imperative to disclose all the essential ones to take advantage of it

 

3. opposite principle: a principle that meet the cost and expenses Alambaatbalaaradat belonging to her during a specific period of time. It is important to determine the stage Elzimnahllhassab, in the sense that it is possible that there will be expenses do not belong to the current phase of the accounting Elzimnelldorh, are recognized on an accrual basis, and is not T_khasashallairad directly (usually what you get when the sale in installments)

 

4. The principle of recognition of revenue: revenue is recognized on two grounds: Cash Basis: Andastelam amount for the property, regardless of the date of the delivery process or Tkadimalkhaddmh.osas Maturity: Item Antqalh or origin of the facility to the buyer whether or got value for A.mn worth mentioning that revenue is cash flow Aazzalosol covers liabilities through, or both, and by doing so deliver Daahbad completion of the manufacturing period, the provision of services or other activities essential. This is when Alaatravbalairad:

A point of sale means of delivery

 B receipt of the sale price

 C during the production process

D after the production process

 (E) after the sale

 

5. principle of relative importance:

This means that the relative importance of Malomhmaanh considered material to the extent that they influence decision-estimate, and the relative mean Bonhatakhtlv of economic unit to another, according to the company's size and physical capabilities (what Iatbermhma a small company, is not taken into account for a large company in terms of liquidity and Almekdrhalmalah)

 

6. principle of caution:

It is taking into account all the specific Ksairalamtoukah throughout the financial cycle and ignore the revenue even already achieved, and therefore the fact that the so-called financial allocations

 

7. principle of consistency in following lines:

And means applying the same accounting procedures and persistence of the cycle to cycle, and registered in order to be able to Alouhdhalaguetsadah to assess their performance and to be more useful data

 

.8- Principle of objectivity: The data are based on the foundations of Mhaadholast on personal whims, so that measures information more than an accountant for not Althiaz.

Basic Principles of Accounting:

1-        Historical Cost Principle

2-        Revenue Recognition Principle

3-        Matching Principle

4-        Full disclosure Principle

Basic Assumptions:

1-          Economic Entity Assumption

2-          Going Concern Assumption

3-          Monetary Unit Assumption

4-          Periodicity Assumption

Constraints:

1-          Cost-Benefit Relationship

2-          Materiality

3-          Industry Practices

4-          Conservatism

I agree withbthe amswers of all the experts

All fundamental concepts and explicit directives that govern the accounting profession are principles of accounting..

Basic accounting principles (assumptions and guidelines) are:

1- The business will continue to exist in the foreseeable future (going concern assumption).

2- Ongoing business activities / transactions should be reported for a distinct / defined time period.

3- Transactions of a business and of its owner(s) are separate transactions (separate economic entity assumption).

4- Only transactions that can be expressed in monetary terms should be reported.

5- As a rule of thumb, historical figures should be used to record items. However, exceptions are there..

6- Deviation from an accounting principle and omission / inclusion of items / information are allowed if the impact is immeterial (concept of materiality). That's why the financial statements are reasonably accurate, not exact..

7- Important / material information (and the extent of their impact) should be disclosed either in the financial statements or in the notes to financial statements (disclosure requirement).

8- Transactions should be recorded in the period in which they occour, regardless of cash payment / receipt (accrual basis of accounting as opposed to cash basis).

9- Expenses should be matched with related revenues (matching principle, connected with 6- above).

10- If there are two or more alternatives for reporting an item, choose one that understate "net assets" of the business (concept of prudence).

 

the principles of accounting is a debit 

credit 

Since GAAP is founded on the basic accounting principles and guidelines, we can better understand GAAP if we understand those accounting principles. The following is a list of the ten main accounting principles and guidelines together with a highly condensed explanation of each.

1. Economic Entity Assumption

The accountant keeps all of the business transactions of a sole proprietorship separate from the business owner's personal transactions. For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities.

2. Monetary Unit Assumption

Economic activity is measured in U.S. dollars, and only transactions that can be expressed in U.S. dollars are recorded.

Because of this basic accounting principle, it is assumed that the dollar's purchasing power has not changed over time. As a result accountants ignore the effect of inflation on recorded amounts. For example, dollars from a 1960 transaction are combined (or shown) with dollars from a 2015 transaction.

3. Time Period Assumption

This accounting principle assumes that it is possible to report the complex and ongoing activities of a business in relatively short, distinct time intervals such as the five months ended May 31, 2015, or the 5 weeks ended May 1, 2015. The shorter the time interval, the more likely the need for the accountant to estimate amounts relevant to that period. For example, the property tax bill is received on December 15 of each year. On the income statement for the year ended December 31, 2014, the amount is known; but for the income statement for the three months ended March 31, 2015, the amount was not known and an estimate had to be used.

It is imperative that the time interval (or period of time) be shown in the heading of each income statement, statement of stockholders' equity, and statement of cash flows. Labeling one of these financial statementswith "December 31" is not good enough–the reader needs to know if the statement covers the one weekended December 31, 2015 the month ended December 31, 2015 the three months ended December 31, 2015 or the year ended December 31, 2015.

4. Cost Principle

From an accountant's point of view, the term "cost" refers to the amount spent (cash or the cash equivalent) when an item was originally obtained, whether that purchase happened last year or thirty years ago. For this reason, the amounts shown on financial statements are referred to as historical cost amounts.

Because of this accounting principle asset amounts are not adjusted upward for inflation. In fact, as a general rule, asset amounts are not adjusted to reflectany type of increase in value. Hence, an asset amount does not reflect the amount of money a company would receive if it were to sell the asset at today's market value. (An exception is certain investments in stocks and bonds that are actively traded on a stock exchange.) If you want to know the current value of a company's long-term assets, you will not get this information from a company's financial statements–you need to look elsewhere, perhaps to a third-party appraiser.

5. Full Disclosure Principle

If certain information is important to an investor or lender using the financial statements, that information should be disclosed within the statement or in the notes to the statement. It is because of this basic accounting principle that numerous pages of "footnotes" are often attached to financial statements.

As an example, let's say a company is named in a lawsuit that demands a significant amount of money. When the financial statements are prepared it is not clear whether the company will be able to defend itself or whether it might lose the lawsuit. As a result of these conditions and because of the full disclosure principle the lawsuit will be described in the notes to the financial statements.

A company usually lists its significant accounting policies as the first note to its financial statements.

6. Going Concern Principle

This accounting principle assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future. If the company's financial situation is such that the accountant believes the company will not be able to continue on, the accountant is required to disclose this assessment.

The going concern principle allows the company to defer some of its prepaid expenses until future accounting periods.

7. Matching Principle

This accounting principle requires companies to use the accrual basis of accounting. The matching principle requires that expenses be matched with revenues. For example, sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid. If a company agrees to give its employees 1% of its 2015 revenues as a bonus on January 15, 2016, the company should report the bonus as an expense in 2015 and the amount unpaid at December 31, 2015 as a liability. (The expense is occurring as the sales are occurring.)

Because we cannot measure the future economic benefit of things such as advertisements (and thereby we cannot match the ad expense with related future revenues), the accountant charges the ad amount to expense in the period that the ad is run.

(To learn more about adjusting entries go to Explanation of Adjusting Entries and Quiz for Adjusting Entries.)

8. Revenue Recognition Principle

Under the accrual basis of accounting (as opposed to the cash basis of accounting), revenues are recognized as soon as a product has been sold or a service has been performed, regardless of when the money is actually received. Under this basic accounting principle, a company could earn and report $20,000 of revenue in its first month of operation but receive $0 in actual cash in that month.

For example, if ABC Consulting completes its service at an agreed price of $1,000, ABC should recognize $1,000 of revenue as soon as its work is done—it does not matter whether the client pays the $1,000 immediately or in 30 days. Do not confuse revenuewith a cash receipt.

9. Materiality

Because of this basic accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to decide whether an amount is insignificant or immaterial.

An example of an obviously immaterial item is the purchase of a $150 printer by a highly profitable multi-million dollar company. Because the printer will be used for five years, the matching principle directs the accountant to expense the cost over the five-year period. The materiality guideline allows this company to violate the matching principle and to expense the entire cost of $150 in the year it is purchased. The justification is that no one would consider it misleading if $150 is expensed in the first year instead of $30 being expensed in each of the five years that it is used.

Because of materiality, financial statements usually show amounts rounded to the nearest dollar, to the nearest thousand, or to the nearest million dollars depending on the size of the company.

10. Conservatism

If a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount. Conservatism helps the accountant to "break a tie." It does not direct accountants to be conservative. Accountants are expected to be unbiased and objective.

The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but it does not allow a similar action for gains. For example,potential losses from lawsuits will be reported on the financial statements or in the notes, but potentialgains will not be reported. Also, an accountant may write inventory down to an amount that is lower than the original cost, but will not write inventory up to an amount higher than the original cost.

Since GAAP is founded on the basic accounting principles and guidelines, we can better understand GAAP if we understand those accounting principles. The following is a list of the ten main accounting principles and guidelines together with a highly condensed explanation of each. 1. Economic Entity Assumption The accountant keeps all of the business transactions of a sole proprietorship separate from the business owner's personal transactions. For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities. 2. Monetary Unit Assumption Economic activity is measured in U.S. dollars, and only transactions that can be expressed in U.S. dollars are recorded. Because of this basic accounting principle, it is assumed that the dollar's purchasing power has not changed over time. As a result accountants ignore the effect of inflation on recorded amounts. For example, dollars from a 1960 transaction are combined (or shown) with dollars from a 2015 transaction. 3. Time Period Assumption This accounting principle assumes that it is possible to report the complex and ongoing activities of a business in relatively short, distinct time intervals such as the five months ended May 31, 2015, or the 5 weeks ended May 1, 2015. The shorter the time interval, the more likely the need for the accountant to estimate amounts relevant to that period. For example, the property tax bill is received on December 15 of each year. On the income statement for the year ended December 31, 2014, the amount is known; but for the income statement for the three months ended March 31, 2015, the amount was not known and an estimate had to be used. It is imperative that the time interval (or period of time) be shown in the heading of each income statement, statement of stockholders' equity, and statement of cash flows. Labeling one of these financial statements with "December 31" is not good enough–the reader needs to know if the statement covers the one week ended December 31, 2015 the month ended December 31, 2015 the three months ended December 31, 2015 or the year ended December 31, 2015. 4. Cost Principle From an accountant's point of view, the term "cost" refers to the amount spent (cash or the cash equivalent) when an item was originally obtained, whether that purchase happened last year or thirty years ago. For this reason, the amounts shown on financial statements are referred to as historical cost amounts. Because of this accounting principle asset amounts are not adjusted upward for inflation. In fact, as a general rule, asset amounts are not adjusted to reflect any type of increase in value. Hence, an asset amount does not reflect the amount of money a company would receive if it were to sell the asset at today's market value. (An exception is certain investments in stocks and bonds that are actively traded on a stock exchange.) If you want to know the current value of a company's long-term assets, you will not get this information from a company's financial statements–you need to look elsewhere, perhaps to a third-party appraiser. 5. Full Disclosure Principle If certain information is important to an investor or lender using the financial statements, that information should be disclosed within the statement or in the notes to the statement. It is because of this basic accounting principle that numerous pages of "footnotes" are often attached to financial statements. As an example, let's say a company is named in a lawsuit that demands a significant amount of money. When the financial statements are prepared it is not clear whether the company will be able to defend itself or whether it might lose the lawsuit. As a result of these conditions and because of the full disclosure principle the lawsuit will be described in the notes to the financial statements. A company usually lists its significant accounting policies as the first note to its financial statements. 6. Going Concern Principle This accounting principle assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future. If the company's financial situation is such that the accountant believes the company will not be able to continue on, the accountant is required to disclose this assessment. The going concern principle allows the company to defer some of its prepaid expenses until future accounting periods. 7. Matching Principle This accounting principle requires companies to use the accrual basis of accounting. The matching principle requires that expenses be matched with revenues. For example, sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid. If a company agrees to give its employees 1% of its 2015 revenues as a bonus on January 15, 2016, the company should report the bonus as an expense in 2015 and the amount unpaid at December 31, 2015 as a liability. (The expense is occurring as the sales are occurring.) Because we cannot measure the future economic benefit of things such as advertisements (and thereby we cannot match the ad expense with related future revenues), the accountant charges the ad amount to expense in the period that the ad is run. (To learn more about adjusting entries go to Explanation of Adjusting Entries and Quiz for Adjusting Entries.) 8. Revenue Recognition Principle Under the accrual basis of accounting (as opposed to the cash basis of accounting), revenues are recognized as soon as a product has been sold or a service has been performed, regardless of when the money is actually received. Under this basic accounting principle, a company could earn and report $20,000 of revenue in its first month of operation but receive $0 in actual cash in that month. For example, if ABC Consulting completes its service at an agreed price of $1,000, ABC should recognize $1,000 of revenue as soon as its work is done—it does not matter whether the client pays the $1,000 immediately or in 30 days. Do not confuse revenue with a cash receipt. 9. Materiality Because of this basic accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to decide whether an amount is insignificant or immaterial. An example of an obviously immaterial item is the purchase of a $150 printer by a highly profitable multi-million dollar company. Because the printer will be used for five years, the matching principle directs the accountant to expense the cost over the five-year period. The materiality guideline allows this company to violate the matching principle and to expense the entire cost of $150 in the year it is purchased. The justification is that no one would consider it misleading if $150 is expensed in the first year instead of $30 being expensed in each of the five years that it is used. Because of materiality, financial statements usually show amounts rounded to the nearest dollar, to the nearest thousand, or to the nearest million dollars depending on the size of the company. 10. Conservatism If a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount. Conservatism helps the accountant to "break a tie." It does not direct accountants to be conservative. Accountants are expected to be unbiased and objective. The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but it does not allow a similar action for gains. For example, potential losses from lawsuits will be reported on the financial statements or in the notes, but potential gains will not be reported. Also, an accountant may write inventory down to an amount that is lower than the original cost, but will not write inventory up to an amount higher than the original cost.

Below are the following Accounting Principles

1. Economic Entity Assumption

2. Monetary Unit Assumption

3. Time Period Assumption

4. Cost Principle

5. Full Disclosure Principle

6. Going Concern Principle

7. Matching Principle

8. Revenue Recognition Principle

9. Materiality

 

 

The Principles are framelines of Accounting treatments approved by a specific Governing Organization to be used by Entities to standarize the preparation of their Financial Statements in a manner helps investors & creditors better compare & evaluate a Company's performance.

Although The use of GAAP ( Generaly Accepted Accounting Principles issued by FASb Financial Accounting Standard Board ) is not mandatory for all businesses, a Governing Body like the SEC ( Securities and Exchange Commission ) requires publicly trated & regulated Companies to follow GAAP in the preparation of their Financial Statements to protect the Public.

Each Country has its Own Governing Body that enforce the application of Accounting Principles & also has its Issuing Board that issue the applied Principles.