Answer the following questions :
What do you mean by accounting principles?
What do you mean by accounting principles?
These days, accounting statements are needed by various parties that have their interests in a business, namely, proprietors, investors, creditors, government and other accounting users. It is, therefore, necessary that such statements should be prepared according to the standards and rules. These rules are usually called ‘Generally Accepted Accounting Principles’ (GAAP). These principles have been generally accepted by accountants all over the world as general guidelines for preparing the financial statements. These principles ensure that financial reporting is transparent and consistent from one organisation to another. Accounting principles can also be described by various terms such as assumptions, conventions, concept etc.
According to The American Institute of Certified Public Accountants “Principles of Accounting are the general law or rule adopted or proposed as a guide to action, a settled ground or basis of conduct or practice”.
Basic or Fundamental Accounting Assumptions
1. Going Concern- It is the basic underlying assumption of accounting, which states that financial statements are prepared assuming that the business is a going concern, i.e. the company intends to continue the business indefinitely.
2. Consistency- The convention of consistency means accounting practices, once adopted, must be applied consistently in future.
3. Accrual- According to the accrual concept, business transactions are recorded as and when they occur and not when payment for the same is made.
Characteristics of Accounting Principles
1. Flexible in Nature: The accounting principles must be flexible in nature in order to keep up with the ever-changing needs of a business.
2. Man-made: These principles have been developed by accountants and academicians over a long period of time through continuous application, while adapting to the ever-changing needs of businesses.
3. Generally Accepted: These principles are universally accepted and are free from personal bias. In order to be universal in character, three basic criteria should be fulfilled, which are given below :
a. Usefulness
b. Objectivity
c. Feasibility
These days, accounting statements are needed by various parties that have their interests in a business, namely, proprietors, investors, creditors, government and other accounting users. It is, therefore, necessary that such statements should be prepared according to the standards and rules. These rules are usually called ‘Generally Accepted Accounting Principles’ (GAAP). These principles have been generally accepted by accountants all over the world as general guidelines for preparing the financial statements. These principles ensure that financial reporting is transparent and consistent from one organisation to another. Accounting principles can also be described by various terms such as assumptions, conventions, concept etc.
According to The American Institute of Certified Public Accountants “Principles of Accounting are the general law or rule adopted or proposed as a guide to action, a settled ground or basis of conduct or practice”.
Basic or Fundamental Accounting Assumptions
1. Going Concern- It is the basic underlying assumption of accounting, which states that financial statements are prepared assuming that the business is a going concern, i.e. the company intends to continue the business indefinitely.
2. Consistency- The convention of consistency means accounting practices, once adopted, must be applied consistently in future.
3. Accrual- According to the accrual concept, business transactions are recorded as and when they occur and not when payment for the same is made.
Characteristics of Accounting Principles
1. Flexible in Nature: The accounting principles must be flexible in nature in order to keep up with the ever-changing needs of a business.
2. Man-made: These principles have been developed by accountants and academicians over a long period of time through continuous application, while adapting to the ever-changing needs of businesses.
3. Generally Accepted: These principles are universally accepted and are free from personal bias. In order to be universal in character, three basic criteria should be fulfilled, which are given below :
a. Usefulness
b. Objectivity
c. Feasibility
