Basic Accounting Principles and Concepts
Accounting is called the language of business that which communicates the financial condition and performance of a business to interested users, also referred to as stakeholders.
In order to become effective in carrying out the accounting procedure, as well as in communicating the financial information of the business, there is a widely accepted set of rules, concepts and principles that governs the application of the accounting procedures, and it is referred to as the Generally Accepted Accounting Principles or GAAP.
In this article, you will learn and familiarize yourself with the accounting principles and accounting concepts relevant in ...view middle of the document...
Thus, any non-financial or non-monetary information that cannot be measured in a monetary unit are not recorded in the accounting books, but instead, a memorandum will be used.
4. Historical Cost
All business resources acquired should be valued and recorded based on the actual cash equivalent or original cost of acquisition, not the prevailing market value or future value. Exception to the rule is when the business is in the process of closure and liquidation.
This principle requires that revenue recorded, in a given accounting period, should have an equivalent expense recorded, in order to show the true profit of the business.
6. Accounting Period
This principle entails a business to complete the whole accounting process of a business over a specific operating time period. It may be monthly, quarterly or annually. For annual accounting period, it may follow a Calendar or Fiscal Year.
This principle states that given two options in the valuation of business transactions, the amount recorded should be the lower rather than the higher value.