What are the basic accounting principles

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What are the basic accounting principles

What are the basic accounting principles?   

Basic accounting principles are general decision-making rules that help in accounting techniques development. Through accounting principles, you can learn how to record and report the transactions.

Basic Accounting Principles are

  • Revenue Recognition Principle
  • Historical Cost Principle
  • Matching Principle
  • Full Disclosure Principle
  • Objectivity Principle

Revenue Recognition Principle

Through this principle, revenue is recognized in an enterprise‘s income statement.  What are they consider as revenue? Those are

  • Gross inflow of cash
  • Receivables
  • Other considerations such as income from goods sales, service rendering.

It excludes certain taxes, a commission from the agency relationship.

Historical Cost Principle

During the acquisition the amount paid for the assets. Those transactions are recorded in the accounting records. The cost paid during the acquisition periods that will be become as basis accounts.

If the cost is not paid for the asset, that will not record as an asset. For example, the most favorable location is not recorded through these valuable assets. Cost concept usage lies in the fact that it is verified objectively.

Matching Principle

Based on this principle, recognized revenue in the accounting period must match with expense in that period. For example, if income is recognized on goods sold during a period, the expenses of those products ought to be charged to that period.

It isn’t right to recognize revenue on all sales, expenses are charged on sales in the accounting period. For this principle accrual concept is used and it ignores the cash inflow, cash outflow and concentrates on accrued revenue and expenses.

Matching principle does not mean that revenue should recognize with expenses.

Revenue and expenses may or may not be identical in the accounting period.  For example Sales, related terms are Cost of goods sold and commission to salesmen whereas some of the sale revenue is charged to accounting period to which they relate.

These are the basic accounting principle. To know more about the accounting principles keep touch with us!! We provide various accounting software such as payroll, Point of sale, UBS Accounting software, ERP Software, Quicken software, MYOB accounting software etc.

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