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PRINCIPLES OF ACCOUNTING Summary Notes

This document outlines 13 key accounting principles: [1] Accrual principle, [2] Conservatism principle, [3] Consistency principle. It discusses how the accrual principle requires transactions to be recorded when they occur rather than when payment is received, the conservatism principle states that future losses should be anticipated over future gains, and the consistency principle requires an accounting method to be used consistently over time.

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Keyah Nkongho
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3K views4 pages

PRINCIPLES OF ACCOUNTING Summary Notes

This document outlines 13 key accounting principles: [1] Accrual principle, [2] Conservatism principle, [3] Consistency principle. It discusses how the accrual principle requires transactions to be recorded when they occur rather than when payment is received, the conservatism principle states that future losses should be anticipated over future gains, and the consistency principle requires an accounting method to be used consistently over time.

Uploaded by

Keyah Nkongho
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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NAME: Shiyntum Emeal Kelah

Department: Project Management

1) Accrual principle
- Also known as matching principle, the accrual principle is an
accounting concept that requires transactions to be recorded in the
time period in which they occur, regardless of when the actual
cash flows for the transaction are received. The idea behind the
accrual principle is that financial events are properly recognized by
matching revenues against expenses when transactions – such as
a sale – occur, rather than when the actual payment for the
transaction may be received.
-
2) Conservatism principle

This states that, as a business, should anticipate and record future losses
rather than future gains. The principle of conservatism in accounting
gives guidance when recording cases of uncertainty or estimates. In other
words, you should always lean towards the most conservative side of any
transaction.
3) Consistency principle

The consistency principle states that once you decide on an accounting


method or principle to use in your business, you need to stick with and
follow this method or principle consistently throughout your
accounting periods.

4) Cost principle

The cost principle is an accounting principle that records assets at their


respective cash amounts at the time the asset was purchased or acquired. The
amount of the asset that is recorded may not be increased for improvements in
market value or inflation, nor can it be updated to reflect any depreciation.
Assets that are recorded can include short-term and long-term assets, liabilities
and any equity, and these assets are always recorded at their original cost.

5) Economic entity principle

The economic entity principle states that the recorded activities of a


business entity should be kept separate from the recorded activities of its
owner(s) and any other business entities. This means that you must
maintain separate accounting records and bank accounts for each entity,
and not intermix with them the assets and liabilities of its owners or
business partners. Also, you must associate every business transaction
with an entity.

6) Full disclosure principle

The full disclosure principle is a concept that requires a business to report


all necessary information about their financial statements and other
relevant information to any persons who are accustomed to reading this
information.

7) Going concern principle

The going concern concept of accounting implies that the business


entity will continue its operations in the future and will not liquidate or
be forced to discontinue operations due to any reason. A company is a
going concern if no evidence is available to believe that it will or will
have to cease its operations in foreseeable future.
8) Matching principle

Matching principle is the accounting principle that requires that the


expenses incurred during a period be recorded in the same period in
which the related revenues are earned. This principle recognizes
that businesses must incur expenses to earn revenues

9) Materiality principle

Materiality Principle or materiality concept is the accounting


principle that concern about the relevance of information, and the
size and nature of transactions that report in the financial statements.
The main objective of the materiality principle is to provide guidance for
the accountant to prepare the entity’s financial statements.
And the most important thing is to make sure that information using by
shareholders and investors is sufficient enough for them in making the
correct decision.

10) Monetary unit principle

The monetary unit principle states that business transactions should


only be recorded if they can be expressed in terms of a currency. In
other words, anything that is non-quantifiable should not be recorded in
a business' financial accounts

11) Reliability principle

The accounting rule of the reliability principle concerns the financial


information of a business, and states that the information presented in
the accounting records and statements should be the most accurate and
relevant information available.

12) Revenue recognition principle

Revenue recognition is a generally accepted accounting


Principle (GAAP) that identifies the specific conditions in which revenue is
recognized and determines how to account for it. Typically, revenue is
recognized when a critical event has occurred, and the amount is easily
Measurable to the company. For example, revenue accounting is fairly
straightforward when a product is sold, and the revenue is recognized
when the customer pays for the product. However, accounting for
revenue can get complicated when a company takes a long time to
produce a product. As a result, there are several situations in which
there can be exceptions to the revenue recognition principle.

13) Time period principle

The time period principle (or time period assumption) is an accounting


principle which states that a business should report their financial
statements appropriate to a specific time period.

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