ACCOUNTING PRINCIPLES

Accounting Principles

Concepts, rules, standards, assumptions or postulates that guide accountants in recording financial transactions and preparing/interpreting financial statements

Entity Principle

States that the business organization is a legal entity separate and distinct from the owners

Monetary Principle

Transactions should be expressed in monetary terms

Going Concern

The business is assumed to continue operation for an indefinite period of time in the future, unless situations would warrant its closure or liquidation

Time Period

To determine the profit and financial decisions of the business, audit is made at periodic time intervals

Cost Principle

States that planned assets should always be recorded at their original costs, never at their book value

Dual Aspect

For every financial transaction, there is always a debit account affected and a credit account affected

Matching Principle

The expense that is incurred to generate income should both be recorded in the same accounting period

Realization

Income is considered realized when goods have been delivered or services have been rendered, irrespective of when payment has been made

Conservatism

States to never anticipate profits, but provide for all possible losses

Consistency

When one method or system is applied for one year, it should be consistently applied in the subsequent years for the purpose of comparability

Objectivity

For every financial transaction, there should be supporting documents

Materiality

Relevant (material) information known to the accountant must be shown in the financial statements

Full Disclosure

Indicating as footnotes to financial statements all significant information