Basic Accounting Principles

The Cost Principle– Businesses need to register and report all their assets depending on the actual cost received to the

businesses, while gaining those assets rather than the free-market rate of the assets themselves. – Cost principle is a reliable method to record and report data. Also, it decreases the chance for

elements like predetermined market values to step in with the accounting.

The Accrual Principle– Businesses need to register and report revenue when it's earned or made and realized definitely

not once the cash for the revenue is received.– The accrual principle basically shows the work finished by the company/business and not the work

that needs to be done for the future.

The Matching Principle– Businesses get to analyze current expenses and revenues. – The matching principle shows the market, how well companies/businesses are doing financially and

effective they really are.

The Disclosure Principle– Businesses have to disclose their records, so that judgment over their financial status can be made

accordingly. – But revealing the accounting and financial data of the companies/businesses should not make them

decrease unjustified expenses or make incorrect notions.

Basic Accounting Concepts

Business Entity– This principal treats the company as a separate entity from its owners. Personal accounts of

owners/partners should be kept separate from profits and expenses of the company.

Going Concern– The assumption here is made that a business will keep on trading or operating for a very long time.– Going concern concept indicates that the financial statements don't necessarily represent that

business's worth, if the assets were liquidated. However, those assets can be used for any future financial operations.

Consistency– For all businesses, the principles used should be same for each and every set of accounts which

are prepared. – This means, if depreciation is recorded, it should always be set at the same percentage every time.

Prudence– Businesses should try to make mistakes on the side of caution, while making estimates and

valuations.

Cost– This principle states that the company has to consider the original cost of fixed assets like building

and machinery, rather than market value.

Stable Money– Any transactions occurring over a certain time frame should always reflect single currency and

exchange rate. This way, a year's accounts can be compared with another, despite the rate of inflation.

Duality– Every transaction has 2 effects. Let's say the business purchases a new asset, printing machine.

This will show an increase in fixed assets and also an increase in liabilities or cash.