Question

Write and explain accounting policies for organization

Answer 1

Accounting Policies:

Accounting policies are the basis on which the organization prepares its financial statements. Selection of Accounting policies is a very critical decision for any organization as it indicates whether the management of the organization is conservative or aggressive in there decision making. To ensure that the user's of financial statements understand it properly and clearly, it is very important to disclose all the significant accounting policies in the notes to financials. Accounting policies vary from company to company.

Once chosen, it is very difficult to change the accounting policies. They can be changed only when there is a change in law or change in accounting standards or for better presentations of financial statements. So accounting policies should be consistent. Example of accounting policies can be valuation of inventory on the basis of FIFO or weighted average. Research and development costs also require proper accounting policies. Such policies can be used to manipulate the financial statements. Many times people confuse that depreciation is a accounting policy but no, depreciation is a accounting estimate.

Accounting policies are governed by the accounting standards across the globe. Selection of accounting policies require defining the policy, writing the overview, number steps and prepare a policy manual.