Business entity concept: This concept of accounting principle views business and business owner separately as far as their financial transactions are concerned.Since money is the common unit of measurement, as an accounting principle, you are allowed to record only those transactions or events which can be measured or expressed in terms of money. Money measurement principle: In accounting, all the business transactions are measured in terms of money as a common unit of measurement.
Among the several accounting concepts, the following are some of the important. Let us first understand the accounting concepts as a first step to get the accounting principles right. For you to understand the accounting principles, you need to know these accounting concepts and conventions. They define certain standards and protocols, that companies are expected to follow in order to get more accurate and efficient viewing of company statements and reports.Īccounting Principles involves accounting concepts and accounting conventions. Why are accounting principles important?Īccounting principles are important as they ensure consistency when it comes to maintaining financial records around the world. but at the core, the fundamentals and objective of accounting principles remain the same.
The regulators and authorities of each country may have their own accounting principles like UK GAAP, USA GAAP, IFRS etc. The accounting principles are commonly referred to as ‘Generally Accepted Accounting Principles (GAAP).Īccounting principles helps to bring the uniformity in accounting and preparing financial statements and it is followed worldwide. Accounting principles are the foundational guidelines for recording and preparing financial statements. What is Accounting Principle?Īccounting principle refers to common rules or guidelines for accounting financial transactions and preparing financial statements. Here is why Accounting principles helps to bridge the gap and aims to bring some level of uniformity in financial reporting. As a result, financial data becomes unusable. This becomes practically impossible for a business compare and read the other companies’ statements. Now imagine, if each business prepares the financial statement in their own way, we all will have hundreds of thousands of financial statements formats trying to convey the same information. These financial statements are used by both internal stakeholders as well as external like investors, tax authorities, regulators, banks etc. By recording all the financial transaction, accounting helps in determining the financial performance of the business by preparing financial statements. With modern day business requirements, business and accounting are simply inseparable. Accounting is an integral part of every business regardless of business size.
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