The more accounts you learn, the more comfortable for you to manage your business. accounting principles are the basic terms of accounts and which should be learned and recognized by everyone. Remember that. It is not a class test that you will determine and forget it after two days.
Accounting principals are the building blocks of GAAP (General accepted accounting policies). These are only basics of accounts, and some of the principals come after long-term practices in accounts. To be the instance, I will be adding five basic accounting principles here.
Accounting principals are the basis of accounts, and it is essential to have a practice on these principals. The list of five accounting principals are:
- Historical Cost Principle
- Revenue Recognition Principle
- Matching Principle
- Full Disclosure Principle
- Cost-Benefit Principle
#1 Historical Cost Principle:
In this principle, we are required to put the exact value of goods or services we purchasing during the financial year without any fluctuation in assets.
#2 Revenue Recognition Principle:
It is required to record the original revenues entry like when the revenue had earned not about when you received.
#3 Matching Principle:
Matching principle is requires to record the expenses and revenues with the actual dates like when the costs are occurred instead of whey we paid.
#4 Full Disclosure Principle:
To prevent any mistakes or fraud, this principle is used in accounts. It is to disclose the knowledge or any piece of information that may affect the business, and it should add in the footnote of the accounts.
#5 Cost-benefit principle:
If the cost outweighs the benefit, then the cost-benefit principle applied.
Key Accounting Assumptions:
Monetary and periodicity are two key accounting assumptions made in accounts. The monetary Unit assumes that all the financial transactions should be recorded in a stable currency. This is even essential for getting a better financial statement. Whereas, the periodicity unit assumptions tell us that the company should record its business transactions in the given period.
We know that four basic accounting concepts are regulated by GAAP. The four fundamental concepts are:
- Business Entity Concept
- Going Concern Concept
- Materiality Concept
- Industry Practices Constraint
#1 Business Entity Concept:
There is an idea behind the business that all the business-related transactions should record separately than any individual transactions.
#2 Going Concern Concept:
In this accounting concept, we do carry some rights, and until and until we do not have evidence of any company solvency we can not sue them.
#3 Materiality Concept:
Anything that can change a financial statement of the company should be recorded in the books of accounts. Example owner suggestions.
#4 Industry Practices Constraint:
Some business does not run with the principles of accounting standards made by GAAP, and they are allowed to separate from GAAP (General accepted accounting policies).
Basic accounting principles are essential to understand for every business owner. Even the business owner does not belong to commerce background. In this post, we have added some of the accounting principles and the key assumptions concept.