Accounting practices follow certain rules. The set of rules and procedures that constitute acceptable accounting practice at a given time is GAAP, which stands for generally accounting principles. In order to generate information that is useful to the users of financial statements, accountants rely upon the following principles below:
Objectivity Principle - Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible. Reliable data are verifiable when they can be confirmed by independent observers. Ideally, accounting records are based on information that flows from activities documented by objective evidence. Without this principle, accounting records would be based on whims and opinions and is therefore subject to disputes.
Historical cost - Principle states that the acquisition of asset should be recorded at its actual cost and not what the management think about of its worth at reporting date Revenue Recognition Principles - in this state revenue is recorded when goods are delivered or the services has been performed or rendered
Adequate Disclosure - its means that all vital accounting information that affect the understanding of accounting firm should be disclosed on the financial statement Materiality -
Materiality - depends on the size and nature of the item judged in the particular circumstances of its exclusion. In deciding whether an item or an aggregate of items is material, the nature and size of the item are classify together. Depending on the status of its nature, either the size of the item could be the determining aspect.
Consistency Principle - Compnay should use same accounting approach from period to period to meet the compatibility over time within a single enterprise. Nevertheless, changes are permitted if justifiable and disclosed in financial statements.
SEE ALSO:
Accounting Basics
Historical cost - Principle states that the acquisition of asset should be recorded at its actual cost and not what the management think about of its worth at reporting date Revenue Recognition Principles - in this state revenue is recorded when goods are delivered or the services has been performed or rendered
Adequate Disclosure - its means that all vital accounting information that affect the understanding of accounting firm should be disclosed on the financial statement Materiality -
Materiality - depends on the size and nature of the item judged in the particular circumstances of its exclusion. In deciding whether an item or an aggregate of items is material, the nature and size of the item are classify together. Depending on the status of its nature, either the size of the item could be the determining aspect.
Consistency Principle - Compnay should use same accounting approach from period to period to meet the compatibility over time within a single enterprise. Nevertheless, changes are permitted if justifiable and disclosed in financial statements.
SEE ALSO:
Accounting Basics
