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Essential Accounting Principles Explained

The document outlines basic accounting principles, including the monetary unit principle, reliability principle, and revenue recognition principle, which guide how businesses record financial transactions. It also discusses objectives of financial reporting, emphasizing the need to provide useful and comprehensible information to users. Key principles such as the conservatism principle, consistency principle, and full disclosure principle are highlighted to ensure accurate and transparent financial reporting.

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castilloangeline690
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15 views1 page

Essential Accounting Principles Explained

The document outlines basic accounting principles, including the monetary unit principle, reliability principle, and revenue recognition principle, which guide how businesses record financial transactions. It also discusses objectives of financial reporting, emphasizing the need to provide useful and comprehensible information to users. Key principles such as the conservatism principle, consistency principle, and full disclosure principle are highlighted to ensure accurate and transparent financial reporting.

Uploaded by

castilloangeline690
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Basic Accounting Principles Monetary unit principle - This is the concept that a

business should only record transactions that can


Accounting principles - are the rules that an
be stated in terms of a unit of currency.
organization follows when reporting financial
information. Reliability principle - This is the concept that only
those transactions that can be proven should be
Accrual principle - This is the concept that
recorded.
accounting transactions should be recorded in the
accounting periods when they actually occur, Revenue recognition principle - This is the concept
rather than in the periods when there are cash that you should only recognize revenue when the
flows associated with them. business has substantially completed the earnings
process.
Conservatism principle - This is the concept that
you should record expenses and liabilities as soon Time period principle - This is the concept that a
as possible, but to record revenues and assets only business should report the results of its operations
when you are sure that they will occur. over a standard period of time.
Consistency principle - This is the concept that,
once you adopt an accounting principle or method,
Objectives of financial reporting
you should continue to use it until a demonstrably
better principle or method comes along. Provide Useful Information
Cost principle - This is the concept that a business The first objective is to provide useful information
should only record its assets, liabilities, and equity to the users of financial reports. The information
investments at their original purchase costs. should be useful from a number of perspectives,
such as whether to provide credit to a customer,
Economic entity principle - This is the concept that
whether to lend to a borrower, and whether to
the transactions of a business should be kept
invest in a business. The information should be
separate from those of its owners and other
comprehensible to those with a reasonable
businesses.
grounding in business, which means that it should
Full disclosure principle - This is the concept that not be laced with jargon or burdened with so much
you should include in or alongside the financial detail that it is impossible to extract the essentials
statements of a business all of the information that about a business from its financial statements.
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.

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