Question

Discuss the following accounting principles: Going Concern

Matching Principle

Monetary Unit Assumption

Full Disclosure Principle

Time Period Assumption

Revenue Recognition Principle

Matching Principle

Cost Principle

Relevance,Reliability and Consistency.

Principle of Conservatism

Materiality Principle.

Answer 1

going concern - this concept assumes that an enterprise has an indefinite life or existence. It is assumed that the business has neither intention to liquidate nor to scale down its operations significantly.

matching principle -  According to this principle, all expenses incurred by any enterprises during an accounting period are matched with the revenue recognized during the same period.

monetary unit assumption -  According to this principle, only those transactions that are measured in money or can be expressed in term of money are recorded in the books of accounts of the enterprises.

full disclosure principle - According to this principle, apart from legal requirements all significant and material information relating to the economic affairs of the entity should be completely disclosed in its financial statements and accompanying notes to accounts.

time period assumption - According to this principle, apart from legal requirements all significant and material information relating to the economic affairs of the entity should be completely disclosed in its financial statements and accompanying notes to accounts.

revenue recognition - concept applies equally to revenue and expenses. As per this assumption, all revenue and costs are recognized when they are earned or incurred.

matching principle -  According to this principle, all expenses incurred by any enterprises during an accounting period are matched with the revenue recognized during the same period.

cost principle -According to this Principle, an asset is recorded in the books of accounts at its original cost comprising cost of acquisition and all expenditure incurred for making the assets ready to use.

relevance - all the facts provided in the financial statement should be supported with reliable documentation.

consistency -  According to this assumption, accounting practices once selected and adopted, should be applied consistently year after year.

conservatism - According to this principle, profit in anticipation should not be recorded but loss in anticipation should immediately be recorded. The objective of this principle is not to overstate the profit of the enterprise in any case.

materiality (relevance) -  Disclosure of all material facts is compulsory but it does not imply that even those figures which are irrelevant are to be included in financial statements. According to this principle, only those items or information should be disclosed that have material effect and relevant to the users.