CHAPTER 5:ACCOUNTING PRINCIPLES AND CHARACTERISTICS

The conceptual framework of accounting

This are the rules or guidelines which underpin accounting and accounts records. Preparers of
accounting information must comply with the following principles;

1.Going Concern :The business entity for which accounts are being prepared is in good condition and
will continue to be business for the foreseeable future.

2.Accruals:Revenues and expenses are recorded when they occur, not when cash is received or paid out.
Expenses incurred but not yet paid are recorded in the current period as accrued expenses, expenses
paid in advance before they can be incurred are recorded as prepaid expenses, incomes not yet
received but are expected, are recorded as accrued incomes, incomes received before they can be
realized ,are recorded as prepaid incomes.

3.Consistency :Once an accounting method had been chosen, that method should be used continuously
unless there is a sound reason to do otherwise. If the way an amount is altered, say, depreciation, the
profits could be affected.

4.Double entry: Every transaction has a matching debit and credit entries of equal values in the
bookkeeping system.

5.Business entity Concept: Accounting records must reflect the financial activities of the business, not
financial affairs of its owners.

6.Materiality Concept :all the material items(the ones which their misstatement could alter the
economic decisions of users of financial statements)should be fully disclosed, immaterial items maybe
ignored.

The are also the qualitative characteristics of accounting ,Financial Information must show the
following;
1. Relevance: Financial information must be relevant(capable of influencing the decisions of users.All
relevant information must be included in the financial statements.

2.Faithful Presentation: Financial Information must be complete, neutral and error free, otherwise it will
mislead the decision making of users.

3.Comparability:Financial information should be capable of being compared over time with similar
information, and also be compared with other entities.

4.Verifiability:Accounting information should be capable of being verified through auditing procedures

in order for users to place more trust in the information

5.Timeliness:Information should be provided quickly enough to be used in decision making.

6. Understandability: Information should be presented in aay that makes it understandable to users,

this can be done by classifying information, using accurate descriptions and providing additional noted
where necessary