Question

Accounting principles please provide the essay answer

Answer 1

Accounting principles can be defined as those regulations and rules of conduct or action or that is adopted by the accountants universally while recording the accounting transactions. These can be stated as the body of doctrines commonly associated with the theory and procedures of accounting. The professional world of accounting is mainly governed by general regulation, concept and rules referred to as basic accounting principles and guidelines

Accounting principles can be broadly classified into two main groups.

1) Accounting Concepts: The term 'concepts' is inclusiv eof basic conditions or assumptions on which the science of accounting is based. These concept are:

-- Dual aspect concept: Dual aspect concept is the underlying basis for double entry accounting system. The concept is based on the assumption that every transaction has a dual effect, which means it affects two accounts in their respective opposite sides

-- Separate entity concept: For legal purposes, a sole proprietorship and its owner are categorised to be one entity, however for purposes of accounting they are considered to be two separate entities

-- Going concern concept: This accounting principle is based on the assumption that a company will continue to exist long enough to carry out its goals and objectives and will not liquidate in the foreseeable future.

-- Money measurement concept: Economic activity is measured in money, and only transactions that can be expressed in money are recorded.

-- Cost concept: It is also known as the historical cost principle. The prices at which items were sold and brought are used for the valuations. Although real values do change during the course of time due to recession and inflation, however these are not considered for reporting purposes.

-- Accounting period concept: Accounting periods refers to the period for which financial books are balanced and the financial statements are prepared. Usually, the accounting period consists of 12 months.

-- Matching concept: This accounting principle requires the organisations to use the accrual basis of accounting, thus expenses must be matched with revenues

-- Realization concept: The concept states that the revenue can only be recognized after it has been earned.

2) Accounting Conventions

Accounting conventions is inclusive of traditions or customs or which guide the accountant while communicating the accounting information. These conventions are:

-- Convention of conservatism: If a scenario arises where there are two acceptable alternatives for reporting an item, conservatism states the accountant to select the alternative that will result in less asset amount and/or less net income

-- Convention of full disclosure: The convention requires that companies reveal every aspect of the functioning in their financial statements.

-- Convention of consistency: The convention proposes that the same accounting principles, policies and procedures when once used or applied must be used regularly on a period to period basis for preparing financial statements for facilitating comparison of financial statements on period to period basis.

-- Convention of materiality: The convention states that while accounting only those transactions will be considered which have material effect on financial status of the company and other transactions which have insignificant impact will be ignored.