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Basic Accounting Principles

The document outlines basic accounting principles that organizations must follow when reporting financial information, including concepts such as accrual, conservatism, consistency, and full disclosure. It emphasizes the importance of providing useful and comprehensible information to users of financial reports for decision-making purposes. Additionally, it highlights that financial reporting should adhere to defined rules to ensure consistency and reliability across businesses.

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Car Niño Louise Alfaro
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39 views2 pages

Basic Accounting Principles

The document outlines basic accounting principles that organizations must follow when reporting financial information, including concepts such as accrual, conservatism, consistency, and full disclosure. It emphasizes the importance of providing useful and comprehensible information to users of financial reports for decision-making purposes. Additionally, it highlights that financial reporting should adhere to defined rules to ensure consistency and reliability across businesses.

Uploaded by

Car Niño Louise Alfaro
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
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BASIC ACCOUNTING PRINCIPLES

Accounting principles
● the rules that an organization follows when reporting financial information.
● These are defined rules that ensure businesses follow the same financial practices.
●
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.

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