BASIC Acct ‘ASIC ACCOUNTING PRINCIPLES AND CONCEPTS Accounting counting is called the language of business that which communicates the finanie contiton and performance of a business to interested users, also refered 0 a5 stakeholder, In order to Hetcnne etetie bn emeying ot hn mooning pevonine 2 val a i comming. financial information of the business, there is @ widely accepted set of rules, concepts and prinipes that gover the aplication ofthe accounting procedures, and ts refened 10 a8 be Generally Accepted Accounting Principles of GAAP. In this aticle you will leam and familiarize yourself with the accounting Pe ciples and accounting concepts relevant in performing the accounting procedures, It is relevant 10 nineratand it erause you need o abide by hese concepts and principles everytime You analy2e record, summarize, report and interpret financial transactions of business Guidelines on Basic Accounting Principles and Concepts GAAP is the framework, rules and guidelines of the financial accounting profession with @ purpose of standardizing the accountng concepts, principles and procedures. Here are the basic accounting principles and concepts under this framework: 1. Business Entity wenuninees in considered a separate entity from the owner (3) and should bs twcated separately. Any personal transaction ofits owner should not be recorded in the business ceounting book, vie versa. Unless the owner's personal transaction involves adding and/or withdrawing resources from the business, 2. Going Concer it assumes that an entity will continue ‘recorded based on their original cost ‘and not on market value. Assets are ‘used for an indefinite period of time and not intended to be sold immedietly. to operate indefinitely. In this basis assets are assumed to be 3. Monetary Unit ‘The Business financial transaction recot as US Dollar, Canadian Dollar, Euro, {information that cannot be measured ‘rvounting books, but instead, a memorandum wil be used. ded and reported should be in monetary unit, suck ‘te. thus any non-financial or non-monetary ‘a monetary unit are not recorded in the 4, Cost Principle ‘All business resources acquired should be valued and recorded based on the actual cash yr original cost ‘of acquisition, not the prevailing market value or future value. equivalent o the process of closure and Fiquidetion. Exception to the rule is when the business is in5. Matching Principle This Principle requires that revenue recorded, in a given accounting period, should have aan 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 spacific operating time period. It may be monthly, quarterly or annually. For nized 7. Conservatism This principle states that given two options in the valuation of businesses transaction, the ‘amount recorded should be the lower rather than the higher value, 8. Consistency This principle ensures consistency in the accounting procedures used by the business entity from one accounting period to the ‘ext. Tt allows fair comparison of financial information between two accounting periods. 9. Materiality Ideally, business transactions that may affect the decision of a user of financial information are considered important or material, thus, must be reported properly. This, principle allows errors or violations of accounting valuation involving immaterial and small amount of recorded business transactions. 10. Objectivity This principle requires recorded business transactions should have some form of impartial supporting evidence or documentation. Also, it entails that bookkeeping and financial recording, should be performed with independence, that's free of bias and prejudice. 11 Accrual or Realization Principle This principle requires that revenue should be recorded in the period it is eamed, regardless of the time the cash is received, The same is true for expense. Expense should be Naat res and recorded at the time it is incurred, regardless of the time that cash is paid.