Accounting Principles

Accrual Principle

Revenue and expenses are recognized when they are incurred, not when cash is received or paid.

Matching Principle

Expenses should be recognized in the same period as the revenues they help generate.

Conservatism Principle

When in doubt, choose the solution that results in lower profits or asset values to avoid overstatement.

Going Concern Principle

Assumes that a business will continue to operate indefinitely unless there is evidence to the contrary.

Cost Principle

Assets should be recorded at their original purchase price, not their current market value.

Consistency Principle

Once an accounting method is chosen, it should be used consistently across periods unless a justified change is made.

Revenue Recognition Principle

Revenue should be recognized when it is earned and realizable, regardless of when cash is received.

Full Disclosure Principle

All information that could affect the understanding of financial statements must be disclosed.

Materiality Principle

Only information that would influence the decision of a reasonable person needs to be disclosed.

Entity Concept

The business is treated as a separate entity from its owners or other businesses.

Income Statement

Shows the company's profitability over a specific period by detailing revenues and expenses.

Balance Sheet

Represents a snapshot of an organization's financial position, showing assets, liabilities, and equity at a specific date.

Cash Flow Statement

A report that shows cash inflows and outflows from operating, investing, and financing activities.

Statement of Changes in Equity

A report detailing the changes in owners' equity over a reporting period.

Journal Entry

A record of a financial transaction in the accounting system, showing debits and credits.

Ledger

A book or database where all financial transactions are summarized by account.

Trial Balance

A report that lists all ledger accounts and their balances to ensure that debits equal credits.

Double-entry Bookkeeping

Every transaction affects at least two accounts, with debits equaling credits.

Internal Control

Processes implemented to ensure the accuracy and reliability of financial reporting and compliance with laws.

Risk Management

Identifying and addressing financial risks that could impact the organization's objectives.

Cost Accounting

To track and analyze costs associated with producing goods or services.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life.

Amortization

The gradual write-off of intangible asset costs or loan principal over time.

Variance Analysis

The process of analyzing differences between planned and actual financial performance.

Chart of Accounts

A structured list of all accounts used by an organization to record transactions.

Financial Ratios

Metrics used to evaluate a company's financial performance, such as liquidity, profitability, and solvency ratios.

Forensic Accounting

The use of accounting skills to investigate fraud or financial discrepancies.

Tax Accounting

Preparing financial statements and filings to comply with tax laws and regulations.