Scribd
Upload
36 views4 pages

Accounting Principles - What Are Accounting Principles? - Debitoor

General rules and guidelines

Uploaded by

Salima
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
36 views4 pages

Accounting Principles - What Are Accounting Principles? - Debitoor

General rules and guidelines

Uploaded by

Salima
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

Accounting Principles - What are

accounting principles?
Accounting principles are the general rules and guidelines that
companies are required to follow when reporting all accounts and
financial data.

Maintain and manage your business practices with Debitoor’s


online accounting platform to help you stay on top of your
financial reporting.

Whilst there is currently no universally standardised accepted


accounting principles, there are various accounting frameworks
which set the standard body. The most common accounting
principle frameworks used are IFRS, UK GAAP, and US GAAP. There
are both similarities and differences between these three
frameworks, where GAAP is more rule-based whilst IFRS is more
principle based.

Why are accounting principles important?


The purpose of having - and following - accounting principles is to
be able to communicate economic information in a language that is
acceptable and understandable from one business to another.
Companies that release their financial information to the public are
required to follow these principles in preparation of their statements.

Depending on the characteristics of a company or entity, the


company law and other regulations determine which accounting
principles they are required to apply. The standard accounting
principles are collectively known as Generally Accepted Accounting
Principles (GAAP). GAAP provides the framework foundation of
:
accounting standards, concepts, objectives and conventions for
companies, serving as a guide of how to prepare and present
financial statements.

Why are generally accepted accounting


principles needed?
GAAP aims to regulate and standardise accountancy practices by
providing a framework to ensure companies and organisations are
transparent and honest in their financial reporting. Accounting
principles serve as a doctrine for accountants theory and
procedures, in doing their accounting systems.

Accounting principles ensure that companies follow certain


standards of recording how economic events should be recognised,
recorded, and presented. External stakeholders (for example
investors, banks, agencies etc.) rely on these principles to trust that
a company is providing accurate and relevant information in their
financial statements.

Examples of accounting principles


There are some of the main accounting principles and guidelines,
listed under US GAAP:

1. Conservatism principle - In situations where there are two


acceptable solutions for reporting an item, the accountant
should ‘play it safe’ by choose the less favourable outcome. This
concept allows accountants to anticipate future losses, rather
than future gains.
2. 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
:
throughout your accounting periods.
3. Cost principle - A business should record their assets, liabilities
and equity at the original cost at which they were bought or
sold. The real value may change over time (e.g. depreciation of
assets/inflation) but this is not reflected for reporting purposes.
4. Economic entity principle - The transactions of a business
should be kept and treated separately to that of its owners and
other businesses.
5. Full disclosure principle - Any important information that may
impact the reader’s understanding of a business’s financial
statements should be disclosed or included alongside to the
statement.
6. Going concern principle - The concept that assumes a
business will continue to exist and operate in the foreseeable
future, and not liquidate. This allows a business to defer some
prepaid expenses (accrued) to future accounting periods, rather
than recognise them all at once.
7. Matching principle - The concept that each revenue recorded
should be matched and recorded with all the related expenses,
at the same time. Specifically in accrual accounting, the
matching principle states that for every debit there should be a
credit (and vice versa).
8. Materiality principle - An item is considered ‘material’ if it
would affect or influence the decision of a reasonable individual
reading the company's financial statements. This concept
states that accountants must be sure to include and report all
material items in the financial statement.
9. Monetary unit principle - Businesses should only record
transactions that can be expressed in terms of a stable unit of
currency.
10. Reliability principle - The reliability principle is used as a
guideline in determining which financial information should be
:
presented in the accounts of a business.
11. Revenue recognition principle - Companies should record
their revenues when it is recognised, or in the same time period
of when it was accrued (rather than when it was received).
12. Time period principle - A business should report their financial
statements (income statement/balance sheet) appropriate to a
specific time period.

Accounting principles and Debitoor


A growing business can benefit from an automated accounting
system such as Debitoor invoicing software. Debitoor allows a
businesses to generate and produce financial reports at any given
time. Additionally, it can assist you in managing your accounts and
reporting, and help determine the current financial standing of your
business.

Try Debitoor for free


:

You might also like