Question

accounting principles

Answer 1

Answer :

Assumption : in the absence of Specific information I will give information about Fundamental Principles of Accounting As per US Generally Accepted Accounting Principles ( US GAAP ).

Fundamental Principles :

1.

Historical Cost Principle - Financial Information based on Original Cost not Current market value. Example : Fixed Assets are recorded at Historical Cost.

2.

Revenue Recognition Principle - Entity should recognize revenue to depict the transfer of Promised goods/services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods/services.

*Recognition vs Realization:

(a). Recognition - Actual Recording of transactions and Events in the financial statements.

(b). Realization - Conversion to Cash ( obtain cash or to receive cash )

3.

Matching Principle - To arrive at Profit/Income , related expenses incurred should be matched to the revenues.

4.

Full Disclosure Principle - Report all information that would affect the user's decision ; achieved via footnotes and supplementary information.

5.

Conservatism - Select Method that is least likely to Overstate Assets ( and Revenues / Gains ) and understate Liabilities ( and Expenses / Losses ) in the current period.

(a). Recognize Revenues / Gains only when earnings process is complete ( or substantially complete ).

(b). Recognize Expenses / Losses Immediately.

6.

Accrual Accounting - Recognize Expenses / Revenue on basis of below mentioned criteria:

(a). Cash Paid / Payable whichever is earlier for recognizing Expenses.

(b). Cash Received / Receivable whichever is earlier for recognizing Income.