The following are the principles of accounting:
1. Principle of business entity- In accounting every business organization is treated as a separate body from its owner. Business are perceived treated as separate entities and the purpose of accounting is to record its transactions and report its financial position and profitability.Transactions of owners are not recorded in the business.
2. Principle of money measurement- The transactions are measured, recorded and reported
in terms of monetary value which is known as money management principle. Expression of all assets and liabilities in terms of money creates common measure that permits addition and subtraction of all forms of assets and liabilities and makes possible the
preparation of financial statements.
3. Principle of accounting period- The life of the business is perpetual but it has to report the results of the activities conducted in specific period. Generally, one year is taken as an accounting period.
4. Cost principle- Cost principle states that all the transactions should be recorded at their monetary cost of acquisition. Assets and liabilities are recorded in the books of accounts at the acquisition and are carried from year to year at acquisition cost,irrespective of any subsequent increase or decrease in their market value.
5. Realization principle- According to this principle, revenue is measured by amount charged for goods sold or services rendered to the customers. It states that revenue should be recognized in the period when sale is made and specifies that revenues should be measured as cash received and cash equivalent of other item received.
6. Objectivity principle- This principle states that accounting data should be verifiable. It means that accounts which are prepared should be capable of independent verification.
7. Matching concept- In it, all the expenses incurred in generating revenue should be identified or matched with the revenue generated, period by period. This concept attempts to charge to an accounting period only those expenses which are consumed during the period.
1. Principle of business entity- In accounting every business organization is treated as a separate body from its owner. Business are perceived treated as separate entities and the purpose of accounting is to record its transactions and report its financial position and profitability.Transactions of owners are not recorded in the business.
2. Principle of money measurement- The transactions are measured, recorded and reported
in terms of monetary value which is known as money management principle. Expression of all assets and liabilities in terms of money creates common measure that permits addition and subtraction of all forms of assets and liabilities and makes possible the
preparation of financial statements.
3. Principle of accounting period- The life of the business is perpetual but it has to report the results of the activities conducted in specific period. Generally, one year is taken as an accounting period.
4. Cost principle- Cost principle states that all the transactions should be recorded at their monetary cost of acquisition. Assets and liabilities are recorded in the books of accounts at the acquisition and are carried from year to year at acquisition cost,irrespective of any subsequent increase or decrease in their market value.
5. Realization principle- According to this principle, revenue is measured by amount charged for goods sold or services rendered to the customers. It states that revenue should be recognized in the period when sale is made and specifies that revenues should be measured as cash received and cash equivalent of other item received.
6. Objectivity principle- This principle states that accounting data should be verifiable. It means that accounts which are prepared should be capable of independent verification.
7. Matching concept- In it, all the expenses incurred in generating revenue should be identified or matched with the revenue generated, period by period. This concept attempts to charge to an accounting period only those expenses which are consumed during the period.
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