Fundamental Accounting Principle Chapter 3 Answers
Here is a List of the Basic Accounting Principles
If you want to pursue the career of an accounting then it is immensely important to understand the basic accounting principles. There are a number of accounting principles that have been developed in recent times. It is these principles on which the modern accounting theories are based.
Basic accounting principles
If you are interested to know more about the accounting principles then you can go through the discussion given below:
- Accrual Principle
This principal says that it is important to record different accounting transactions at the time when they have actually occurred. It is not recommended to record transactions when cash flow happens.
This is the most important concept of the accrual principle. Here it is also important to prepare financial statements that will show what actually happened during the accounting period.
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- Conservatism Principle
According to this principle if there is some sort of uncertainty about outcome then it is essential to record both liabilities as well as expenses. If an organization is not very sure about whether it will be able to earn particular revenue then it should not record it. However if they are unsure about a loss that they may have to incur then it is important to record.
- Consistency Principle
This principle states that when an organization adapts an accounting method then it should continue following it till another better method is adapted. If an organization does not follow this principle then the business will follow different accounting principles. Following different accounting principles at different times makes it difficult for an organization to measure its financial result.
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- Cost Principle:
According to this principle, liabilities, assets and equity investments should be recorded at their purchase cost. However this principle is losing its importance. This is because new principles are coming up that say that assets and liabilities should be recorded in their market value.
- Economic entity principle
This principle states that business transactions should be maintained separately from owner’s transactions. This prevents the mixing up of liabilities and assets with other entities. This prevents confusions to arise when financial statements are audited.
- Full disclosure principle
According to this principle it is important to disclose everything that will help the reader to understand the financial statements of an organization.
- Matching Principle
Another very important accounting principle is the accounting principle. According to this principle it is important for an organization to tally the revenue with the cost.
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