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What are the accounting principles, assumptions, and concepts?

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تم إضافة السؤال من قبل Divyesh Patel , Assistant Professional Officer- Treasury , City Of Cape Town
تاريخ النشر: 2014/06/08
Divyesh Patel
من قبل Divyesh Patel , Assistant Professional Officer- Treasury , City Of Cape Town

The main purpose of financial accounting is to provide necessary economic information required for decision-making in a business. It is relevant to understand it because you need to abide by these concepts and principles every time you analyze record, summarize, report and interpret financial transactions of a business.

Rashad Moursi
من قبل Rashad Moursi , Finance Director & Business Development, International Business Transformer Owners Repr. - Hotels , Investment and financial

Accounting principles and assumptions are the essential guidelines under which businesses prepare their financial statements. These principles guide the methods and decisions for a business over a short and long term. For both internal and external reporting purposes, 

 

Accounting concepts rules of accounting that should be followed in preparation of all accounts and financial statements. The four fundamental concepts are;

(1) Accruals concept: revenue and expenses are recorded when they occur and not when the cash is received or paid out;

(2) Consistency concept: once an accounting method has been chosen, that method should be used unless there is a sound reason to do otherwise;

(3) Going concern: the business entity for which accounts are being prepared is in good condition and will continue to be in business in the foreseeable future;

(4) Prudence concept (also conservation concept): revenue and profits are included in the balance sheet only when they are realized (or there is reasonable "certainty" of realizing them) but liaibilies are included when there is reasonable 'possibility' of incurring them

 

ghasan katreeb
من قبل ghasan katreeb , محاسب , ادارة الموارد الساحلية

Accounting assumptions Assumption 1 unit of accounting Economic Entity: This assumption is based on the independence of economic units from each other, and independence as well as their owners, and concludes this hypothesis that each facility her moral Independent, as well as accounting records of their own, and this means that all financial transactions private owner unrelated entity is not registered in the records established .   2 continuity Going Concern: This assumption is based on the grounds that the facility continues to operate for a long period of time and there is no intention to liquidate unless forced to do so. 3 accounting period Periodicity: This assumption is based on the life of the division established to periodically often years and called the financial year. 4 monetary union Monterey Unit: And means translating all financial transactions to monetary units (pounds - dollars - Euro ... etc.)  Accounting principles Accounting principles: The accounting translate economic events to financial information is useful to help different parties in the process of economic decision-making, and in order to be this process can be trusted must be based on the specific rules governing the procedures and accounting methods used in the process of translating these events, these rules are considered the primary reference when recording economic events in the records when compiled, summarized, and most important of these accounting principles as follows: 1 historical cost Historical Cost: Prove the financial transaction on the basis of the actual amount of money that was used in the exchange (the time of purchase) without regard to any subsequent changes increase. 2 interview Matching: Under this concept holds that the revenue of each accounting period Balmusrov who helped bring this revenue or achieve, and the difference between them is the profit for the accounting period of the subject. 3 accrual basis Accrual Concept: Stipulates that are accounting for the financial procedures that the owner has either cash flow or not. The concepts of Merit and the interview of the basic concepts that govern in the light of justice on the representation of the financial statements. 4 Stability Consistency: Of the most important qualities of the quality of the financial statements, whether comparability with other companies' financial statements or other financial statements have from year to year so Ali established consistency in the presentation of financial statements from year to year as well as stability in financial policies. 5 Revenue Revenue Recognition: This principle is based on the basis of lack of recognition of revenue and recorded only after inspecting the records. 6 caution Conservatism: The aim of this principle is not to inflate the profits of established only real profit at the same time reserve for any unexpected losses. 7 relative importance:   Display means each item of the relative importance of separately in the financial statements, the items is not important it is assembled with items that have a similar nature or importance does not require it displayed separately. 8 Disclosure Disclosure: This principle means show all the information needed by the beneficiaries to assist them in making decisions, the goal of this principle is to ensure transparency in the performance of the enterprise so as not to withhold any information that may be needed by the beneficiaries in the decision-making process related to the facility.

SREEDEVI SUNILKUMAR
من قبل SREEDEVI SUNILKUMAR , Business finance officer , Emirates Airline

Accounting principles and assumptions are the essential guidelines under which businesses prepare their financial statements. These principles guide the methods and decisions for a business over a short and long term. For both internal and external reporting purposes, it is important to understand the concepts presented below because they serve as a guideline to the analysis of financial reporting issues.

Revenue Recognition Principle – Under this principle revenue is to be recorded when it is realized (or realizable), and when it is earned and not when it is received. Revenue is realized when goods or services are exchanged, is realizable when assets received can be converted to cash, and is earned when all necessary requirements are met entitling the company to the benefits represented by the revenue (e.g. services performed).

For example, suppose a neighborhood coffee house orders100 coffee mugs from a coffee wholesaler in June. The coffee house takes delivery of the new mugs in July and pays for the order in August. The wholesaler does not recognize the revenue from this sale in June, when the order was placed, or in August, when the cash was received.  For recording purposes, the revenue is recognized by the wholesaler in July, when the coffee mugs were delivered to the coffeehouse.

This principle is used for the recognition of revenue for both goods and services. For example, if an attorney is hired with an agreed upon retainer fee of $2,500 in May, and the services are not performed until July, the attorney does not recognize the revenue until July.  The attorney must earn the income before it can be recorded as such, even though he/she received cash for the service at an earlier date.

 

Historical Cost Principle – The historical cost principle deals with the valuation of both assets and liabilities.  The value at the time of acquisition is used to value most assets and liabilities.  For example, say the coffee wholesaler purchased an office building in1990 for $1.2 million.  Over time this asset has most likely appreciated in value.  However, in accordance with the cost principle, the original (historical) price of the building is what is recorded as the cost of the building in the books of the business.

Note that another basis for valuing elements of financial statements is coming into play.  The new basis is fair value.  With the convergence of global standards, fair value is used more in the United States to value elements of financial statements.

Matching Principle – This principle mandates that the expenses of a business need to line up with its revenue.  The expense or cost of doing business is recorded in the same period as the revenue that has been generated as the result of incurring that cost.  In the case of the coffee wholesaler, when the100 coffee mugs were delivered in July they changed from being a part of inventory (asset) to a cost of goods sold entry (expense) in the month that the revenue from the sale was recognized.  At this point, the difference between the revenue and expense is determined as the gross profit from the sale. 

  Comparability - allows users to identify similarities and differences                        1) one year to the next                               2) one company to another                           A format for financial statements is required.  It shows trends over time

Full Disclosure Principle – This principle states that all past, present and future information that may have had an impact on the financial performance of the company needs to be fully disclosed.  The historical performance of a company is readily available, but examining the numbers does not always provide the entire financial picture of a company. Sometimes there are alternative situations that need to be reported. Pending or current lawsuits are one example of a transaction that could severely impact a company’s bottom line.  In addition, incomplete financial transactions or any other conditions that could impact the company’s performance must also be disclosed. Most of these transactions are disclosed in the footnotes to the financial statements.

 

Accounting Underlying Assumptions - Basis for Generally Accepted Accounting     Principles (GAAP)

·         Entity Assumption - each business is its own “accounting” entity.

·         Periodicity Assumption- divides economic activities into time periods for reporting.

·         Going Concern Assumption  - the company will remain in business and will carry out existing commitments.  Assets will be used to bring future benefit and liabilities will be paid. 

·         Monetary Assumption - assume the dollar is stable over time. 

 

·         No adjustments are made for inflation or deflation.   

محمد رشدى محمد
من قبل محمد رشدى محمد , Internal auditor , Intersect For Contracting

Agreed with the answer given by Mr. Mohammad Iqbal Abubaker 

مستخدم محذوف‎
من قبل مستخدم محذوف‎

The basic fundamental principle of accounting is " For every debit, there is corresponding credit".

The double entry accounting system consist ot3 principles.

1. Personal Account:   Rule: Debit the Receiver, Credit the Giver.

2. Real Account:           Rule: Debit what comes In, Credit what goes Out.

3. Nominal Account :   Rule: Debit All expenses and losses , Credit All gains and Incomes

georgei assi
من قبل georgei assi , مدير حسابات , المجموعة السورية

Accepted accounting principles and generally accepted Accepted Accounting Principles and Almtarefaliha (: Generally accepted accountingprinciples 1 historical cost basis (: Historical cost principle): is the recognition of the cost of the asset when you buy it, it means the need to evaluate the asset according to its price on acquisition, so that is Alaltazampetkfatth and not its value, because the value of the asset can be changed according to demand and services Almtoukahmenh, so to be recognized its value when it is sold! 2 the principle of full disclosure (: Full Disclosure principle): After completing the registration data Almalahotboebha (meaning carried over to the so-called "accounting books"), and processed in the financial statements, results are obtained concerning the financial situation of the company, the extent of profits, losses, the extent of continuity . This paves For information Manmhldy financial decision makers in the financial and economic unity Kalmdra investors in Dakhlacharkh or outside, it is imperative to disclose everything that is essential for them to take advantage of it. 3 principle of the interview (: Matching principle): a principle that interview cost and expenses attributable Alambaatbalaaradat her during a specific time period. It is important to identify Elzimnahllhassab stage, meaning that it is possible that there will be expenses do not belong to the current stage of Elzimnelldorh accounting, are recognized on an accrual basis, and is not directly T_khasashallairad (usually what you get when you process installment sales). 4 principle of revenue recognition (: Revenue Recognition): revenue is recognized on two grounds: Cash Basis: Andastelam amount for the property, regardless of the date of delivery or Tkadimalkhaddma. Accrual basis: Antqalh item or origin of the property to the buyer whether or not the value obtained. It is worth mentioning that the revenue is cash flow Aazzalosol which covers liabilities through, or both, and by doing so deliver Daaahibad completion of the period of manufacturing, services or other activities essential. And when you are Alaatravbalairad: A point of sale means of delivery (: Pointof Sale). (B) the receipt of the sales price (: Recieptof Cash). (C) during the production process (: Revenuerecognized During production). (D) after the production process (: Endof production). (E) after the sale (: Costrecovery). 5. principle of relative importance (: Materiality principle): This means that the relative importance of Malomamaana considered material to the extent that they affect the decision-estimate, and the relative mean Bonhatakhtlv of the economic unit to another, according to company size and potential material (what Iatbermhma for a small company, is not taken into account in the a large company in terms of liquidity and Almekdrhalmalah). 6 principle of caution Conservatism principle: it is taking into account all Alkhsaúralamtoukah throughout the cycle specific financial and revenue even ignored already fulfilled, so the fact that the so-called financial allocations. 7 follow the principle of consistency in the layout (: Consistancy principle): The mean Ttbaiqalagraouat same accounting and persistence of the cycle to cycle, and registered in order to be able to evaluate the performance of Alouhdhalaguetsadah and data will be more useful. 8 principle of objectivity (: Objectivity principle): The data are based on the foundations of Mhaadholist on personal whims, so the measurement of information more than an accountant for not Althiaz. Hypotheses accepted accounting Mahasphha science based on scientific facts and practical, within a theoretical framework that includes the principles and Alfrudhamahaspah of the theory of accounting, and accounting theory you need to measure and experiment Mnkhalal hypotheses documented findings support the validity of this theory, these assumptions do not reach Drjhaltakid absolute because of public Almusdr.ufema follows We know accounting assumptions: 1 impose independence of the accounting unit (: Business Entity) based this hypothesis on the treatment Alouhdhmahaspah as a legal person is completely separate from its owners, and her edema Malahmnfsalh and responsible in absolute terms for suppliers have all its assets and liabilities, and so Tanmaly accountants in the company's Chapter completely between receivables The company funds for Zmmmalikihaand recording economic events. 2 impose continuity (: Going Concern or Continuity) based on Onalouhdh Finance will continue its activities for an indefinite period of time, but if Temtkadir and determine the age of these economic unity through ratios and measurements of financial threaten Alamralafteradi her, then drops this principle because it is supposed that the age of the company's assets Mnamr be longer, and when the discovery as there is threat to this fact and it is not necessarily Ifterdtlashi the principle of continuity of these economic unity. It is easier for accountants in Kiesmdy the success of this unit of accounting, depends all on the imposition of periodic do Bakherojebalqoaúm financial, such as the list of financial flows that measure Njahaao account Alerbahawwalkhosaúr and other accounts, it is worth mentioning that this hypothesis is of great importance Fayaltather on their performance and the performance of those who made it directly to that Spirituality has long been an assumption that this company continues to necessarily lead to an increase in the flow of activities and productivity Hzhalouhdh accounting. 3-impose periodic: Time Period) was necessary, and the presence of this hypothesis and Zlklltseal accountants to inspect the extent of the completion of the accounting unit, through Alentaújalta extracted from the cyclical process to study the economic events of the Code and retained Fayalqoaúm financial accounts Alkhtmaah that measure gains and losses, because it is difficult Alkiempehzh operations of without the division of the financial period and the life span of this unit Elyfterat patrol could be the full year, half a year, or an annual season ...... And divide the periods of periodic financial Elythelath sections are selected based on the nature of the activity of these financial unit and matching, but it is worth mentioning that there are those who would prefer to be a short period in order to finance Akonalvhs more accurate, and there are long periods of preferred measurement in order to be more inclusive Moduaahoakther. These sections are: A- time period for natural Ouhdhmahaspah: (: Natural Business Year) Usually Matbdo Alnchataljohra since starting this company and end with the same activity, and usually this choice Ertbtabacharkat that rely on production. (B) the calendar year (: Calendar Year): is often choosing this period, which ends with periodic 31-12. (C) the financial year in real (: Fiscal Year): This extends the period of12 months but does not end on31 December. 4-imposition of monetary union (: Monetary Unit) supports this principle on the stability of Alouhdhalnkadih of the unit's financial deal with the surrounding economic units, are Mvslalaatmad more on a single currency within the economic unit and measuring other currencies Aliha.lkn often affected by the imposition of the so-called inflationary , but is considered one of the most important Ieibhaly spite of constant purchasing power assumed by accountants steadily financial module.

 

Anayatullah Tahir
من قبل Anayatullah Tahir , Finance Manager , Etqan Projects

Brief and good answer given by Mohammad Iqbal Abubaker, accounting principles, assumptions and concepts have been developed over the decades to make financial records standardized, apprehendable and anylisable by all the accounting and finance professionals all over the world.

Second thought is, that as like all other professions, accounting and finance profession has also evolved to include standard text and procedures to be followed by all in the career, which facilitates businesses, investors, creditors and governments to make  sound decisions based on accounting reports generated on common principles and concepts.

Faraz Sultan
من قبل Faraz Sultan , head of regional operations , BMSA GLOBAL

Accounting Principles are generally the Theoretical Principles laid out in the Accounting Framework to guide Professional Accountants worldwide. They provide a guideline and a broader view than written rules where flexibility is generally limited

Assumptions: Are the underlying beliefs on which FS are prepared. The Going Concern Assumption, The Monetary Unit Assumption, The Time Value of Information assumption and so forth.

Concepts: Are the common ground principles laid out for all Accountants to follow during the recording of accounting transactions. These include the Matching Concept, the Accruals Concept, the Materiality Concept and the Dual Entry Concept to name a few.

VENKITARAMAN KRISHNA MOORTHY VRINDAVAN
من قبل VENKITARAMAN KRISHNA MOORTHY VRINDAVAN , Project Execution Manager & Accounts Manager , ALI INTERNATIONAL TRADING EST.

The basic or fundamental principles in accounting are the cost principlefull disclosure principlematching principle, revenue recognition principle, economic entity assumption, monetary unit assumption, time period assumption, going concern assumption, materiality, and conservatism. 

Agree with the answer given by: Mr. Mohammad Iqbal Abubaker 

مستخدم محذوف‎
من قبل مستخدم محذوف‎

Accounting Principles are standards, rules, regulations and guidelines which must be followed in maintenance of accounts and preparation of financial statements. Examples are Matching Principle, Materiality Principle, etc.

 

Assumptions means your expectations of accounting numbers which you can not accurately know. Like you can assume that a certain asset may be used for5 years period.

 

Concepts are the basis of understanding accounting principles and assumptions.

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