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Accounting Concepts
CSEC
Jun 24, 2022
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Learn about Accounting Concepts
Fundamental Principles of Accounting
- Core assumptions that form the basis for the preparation of financial statements.
Significance of these principles
- Establishing uniformity in data recording and financial statement preparation.
- Enabling dependable and comprehensible comparisons among diverse businesses.
Fundamental Principles of Accounting
Accrual and Matching
- The recognition of revenue and expenses occurs when they are earned or incurred, rather than when cash is received or paid.
- Net Profit = Revenue - Expenses
- Ensuring accurate alignment of incurred expenses with earned revenues within the same period guarantees that the income statement accurately presents the net profit figure.
Prudence
- Exercising caution when declaring profits and making provisions for potential losses.
- Preventing overestimation of assets and understatement of liabilities.
Consistency
- Maintaining a consistent approach to recording and reporting financial information in all reports.
Separate Entity
- Treating the business as an independent and distinct entity from its owners.
- Personal resources of the owner only impact accounting records during capital introduction or withdrawals.
Going Concern
- Assuming the business will continue operating in the foreseeable future.
Money Measurement
- Including only transactions that can be expressed in monetary terms in the accounting records.
Historical Cost
- Recording the value of assets on the balance sheet at their original cost when acquired by the company.