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What are accounting Principles?
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Answer Posted / shaik
Principles derive from tradition, such as the concept of
matching. In any report of financial statements (audit,
compilation, review, etc.), the preparer/auditor must
indicate to the reader whether or not the information
contained within the statements complies with GAAP.
Principle of regularity: Regularity can be defined as
conformity to enforced rules and laws.
Principle of consistency: This principle states that when a
business has once fixed a method for the accounting
treatment of an item, it will enter all similar items that
follow in exactly the same way.
Principle of sincerity: According to this principle, the
accounting unit should reflect in good faith the reality of
the company's financial status.
Principle of the permanence of methods: This principle aims
at allowing the coherence and comparison of the financial
information published by the company.
Principle of non-compensation: One should show the full
details of the financial information and not seek to
compensate a debt with an asset, a revenue with an expense,
etc. (see convention of conservatism)
Principle of prudence: This principle aims at showing the
reality "as is" : one should not try to make things look
prettier than they are. Typically, a revenue should be
recorded only when it is certain and a provision should be
entered for an expense which is probable.
Principle of continuity: When stating financial
information, one should assume that the business will not
be interrupted. This principle mitigates the principle of
prudence: assets do not have to be accounted at their
disposable value, but it is accepted that they are at their
historical value (see depreciation and going concern).
Principle of periodicity: Each accounting entry should be
allocated to a given period, and split accordingly if it
covers several periods. If a client pre-pays a subscription
(or lease, etc.), the given revenue should be split to the
entire time-span and not counted for entirely on the date
of the transaction.
Principle of Full Disclosure/Materiality: All information
and values pertaining to the financial position of a
business must be disclosed in the records.
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