Understanding the 10 Basic Principles will give you a better insight into your business’s financial processes.
Basic Accounting PrinciplesBillie, Anne Grigg “A Guide to Understanding the 10 Fundamental Accounting Principles.” 16 March 2020
1. Economic entity assumption: A business is an entity unto itself and should be treated as such.
2. Monetary unit assumption: All financial transactions should be recorded in the same currency.
3. Specific time period assumption: Financial reports should show results over a distinct period of time.
4. Cost principle: The cost of an item doesn’t change in financial reporting.
5. Full disclosure principle: All information that relates to the function of a business’s financial statements must be disclosed in notes accompanying the statements.
6. Going concern principle: A business will continue to exist and function with no defined end date.
7. Matching principle: Businesses should use the accrual basis of accounting and report all financial information using this method.
8. Revenue recognition principle: Revenue is reported when it’s earned, regardless of when payment is actually received.
9. Materiality principle: When an accountant finds a transactional error, they can use their professional judgment to determine if the error is immaterial to the business.
10. Conservatism principle: When there is more than one acceptable way to record a transaction, expenses and liabilities should be recorded as soon as possible, and revenues and gains should only be recorded when they occur.
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