What are the 13 basic government accounting principles?
Definition:
Accounting principles are the principles, concepts, guidelines, as well as the rules used by the accountant to prepare the organization's financial statements. They are also used by standardization bodies to create accounting standards and frameworks.
You may find that some accounting principles are defined in terms of the quality and quantity of information in IFRS.
Most accounting principles are also set out in accounting standards and frameworks. Although those accounting standards (local GAAP) vary from country to country, the principles set out in the standards are the same.
For example, GAAP or IFRS are different in many areas, but the principles used in those standards are very similar.
1) Growth principle:
Accounting concepts need to be recorded and recognized in the organization’s financial statements when they occur rather than when cash is paid or received.
This policy helps users of financial statements to obtain financial information that actually reflects the current financial situation or economic situation of the organization.
Recognition does not only relate to cash flows, such as the cash base on which revenue is recorded and recognized in the financial statements, but also when cash is collected from customers for services or products that the entity sells to them.
And expenses are recorded and recognized in the financial statements when cash flows out of the entity.
For example, based on accounting principles, revenue from the sale of clothing is recognized where rights and obligations are transferred from the seller to the buyer, even if the seller does not receive payment from the buyer.
Record and acknowledge sales on an accrual basis. Users can see all sales made by the entity during the sale, both credit sales and cash sales. It provides a complete picture of sales during the period.
Another example of accrued costs is that maintenance costs are recognized when the services are used by the organization rather than when the organization pays the supplier.
This recognition will provide users with a complete picture of the financial statements about the amount of maintenance costs incurred during the period, rather than revealing the amount paid for maintenance costs during the period. Basically cash.
2) Conservation principles:
Conservative principles are concerned about the reliability of an organization's financial statements for the benefit of consumers, especially in the areas of expenditures and assets, as well as the assertion of liabilities and expenses.
This accounting policy requires the entity to record and acknowledge liabilities and expenses in the financial statements as soon as possible in the event of uncertain results.
And the entity should not recognize assets or income in the financial statements if the results are uncertain. If this happens, the revenue could be overvalued and lead consumers to make the wrong economic decisions.
For example, an entity should recognize immediate expenses in its financial statements if there is a possibility that an entity may lose a claim to its clients.
This is to ensure that the liability is recognized in the financial statements and that it really reflects the current financial condition of the entity which it may incur.
If these expenditures are material to the financial statements and they are not recorded, the potential investors who make their decisions based on the financial statements that close these expenditures may be at a loss.
The unit may reach a point where it may win the lawsuit. In this case and based on this principle, the entity should not recognize the potential income from this claim.
Related Articles How to prepare invoicing for small business? 7 Tips with Tips
In addition, the entity may be in a situation where the inventory or fixed assets that the entity just acquired last month can now be purchased at a lower cost.
In this case, the entity should consider writing down the portion that differs from the cost so that the assets can be included in a recognizable value.
3) Consistency principle:
The consistency principle is the accounting principle that requires an entity to apply the same accounting method and accounting principles in reporting its financial statements.
There are many benefits to stakeholders of financial statements when the principles of accuracy are applied correctly and strictly.
For example, if different accounting policies or methods are used to measure and recognize revenue, there will be significantly different amounts of revenue contained in the income statement, while there may be slight differences if the accounting policies or Measurement and recognition methods were used.
For example, depreciation rates and methods should be applied regularly from one accounting period to the same fixed assets. If there is a change in the accounting policy, standards should be applied.
Normally, if your financial statements are prepared and presented by IFRS accounting, then changing the IIS 8 accounting principles is the standard you should look for.
This standard guides you through how to handle such cases where you wish to change accounting policies or accounting estimates.
Another example is your organization is currently using FIFO to price your stock, and this method should be used to keep your stock price unchanged.
Not only in this period, but also in the next. This is also assuming that your unit should FIFO be used to value the old stock.
4) Cost principle or historical price principle:
The concept of the historical cost principle is that assets should be recorded based on value at the time of purchase.
And debt should be recorded based on what is expected to be paid at cost rather than market value or inflation-adjusted price.
The historical cost principle is called the cost principle. To avoid incorrect recognition and measurement, it is recommended that accountants follow the accounting standards they are using to prepare financial statements.
For example, you are using IFRS to prepare your financial statements, then you should go to each standard under IFRS that is applicable to the item you are dealing with. For example, the recognition of a PPE is initially measured by cost, and the unit can use a cost module or evaluation module to measure.
However, certain financial assets and liabilities do not apply to this policy. The cost policy is beneficial to accountants and other stakeholders who use financial statements since financial transactions are pricing records and verifiable evidence. For example, the cost of fixed assets can be verified with a supplier purchase invoice.
5) Principles of economic entities:
Business ideas or business entities consider that the owners of the entities have different legal obligations. Under this concept, the entity must record every transaction separately from the owner or owners and other businesses.
This means that the transactions recorded in the entity account are only transactions that belong to the entity.
All financial transactions, assets, liabilities and property owned by the owner, owner or other entity shall not be included in the entity account.
For example, Sinara sells cakes in Bangkok, Thailand. Sinara takes twice for his wife's birthday. In this case, we need to determine who owns and what the entity is. And what transactions take place between Sina and the unit.
So Sinara owns and Sinara is a unit. Sinara withdrew his wife's lawsuit. Thus, by using the business entity’s concept of accounting, accounting for stores is declining for stickiness and increasing withdrawals from owners. Or maybe treat it as a sale to a regular customer.
This principle can help reduce disputes between owners in the event of multiple unit owners. And it also prevents owners from avoiding the obligation to pay taxes to the government.
It also benefits the owner or shareholders to evaluate the performance of each unit separately and evaluate the financial position of the organization.
Related Articles Auditing and Assurance in Auditing: What Are They? And how does it work?
6) Full presentation principle:
The full disclosure policy requires the entity to disclose all necessary information in its financial statements. The main idea behind this policy is that users of an organization's financial statements can rely on the financial information presented in the financial statements to make decisions.
Therefore, it is important to make sure that all the information they need to know is available to them.
This is why this policy is introduced to ensure that information that should be disclosed in an organization’s financial statements in accordance with the requirements of accounting standards or frameworks is presented.
In practice, you can follow each accounting standard, whether the situation arising in your organization should be presented or not as standard.
The information to be disclosed is not just financial information, but also not financial information, such as new laws and regulations that will come into force soon and the organization's business may be vulnerable to those laws and regulations. Subsequent impacts affect the revenue or concerns of the organization.
For example, the government of the country in which the unit operates its business will only increase the number of tax rates and it will take effect next year. The business of the entity and certain profits will suffer.
Organizational concerns are questionable. This case is based on the principle of full disclosure, this modification and how it affects the organization should be fully disclosed in the organizational financial statements.
7) Principles of concern:
Concerns are the idea that the entity will remain in business for the expected period, usually twelve months from the date of operation. If the financial statements are prepared on the basis of concern.
In other words, the entity does not face serious problems, then the users of the financial statements can rely on the financial information of the entity they value, considering the entity can survive for twelve months.
There are many factors that indicate that an organization may be facing worrisome issues. Or the entity may close its business within 12 months from the date of reporting the financial statements.
For example, a unit's main service or product is no longer in demand in the market and sales are plummeting to zero. This situation suggests that an entity may be able to liquidate its assets to support its operations in less than twelve months.
And we can say that it will be resolved in less than twelve months. In this case, the financial statements do not
Should be prepared using the problems that will arise. For example, there is no accumulation of expenses that recognizes both the balance sheet and the income statement. Advance payments should also not be accepted.
The unit should conduct a concern assessment every year to see if it is a concern. The appraisal focuses not only on the financial factors, but also the financial factors that can affect the organization to close its business.
8) Corresponding principles:
The corresponding principle is the accounting principle used to record and recognize expenses and income in the financial statements.
The policy is to make sure that the income and expenses in the income statement are reflected in the period in which they actually occur.
When this principle is properly applied, net income is present and accurate in the income statement. It is not the result of overspending or spending on income or expenses.
For example, when an entity sells goods to its customers, the entity generates revenue and at the same time pays off its finished goods to its customers.
In this case, the sales revenue is recognized in the income statement and the cost of the goods sold is recognized in the same period. Revenue corresponds to the cost of goods sold in the income statement.
If the revenue or cost of goods sold is postponed for any reason, the net income will not arrive as it should. Then the user's decision may be wrong when it depends on this information.
Units can get into situations where customers pay for goods they did not receive. In this case, the entity cannot recognize the payment they received from the customer as revenue. This is because the goods have not yet been delivered to the customer.
Related Articles Related to Accounting Basics: Definitions | Example | Explanation
The entity should recognize payments received from customers as income earned under a debt account.
The unit then delivers the goods to the customer, then the unit can shift from non-revenue to revenue in the income statement. At the same time, the cost of goods sold is also recognized.
9) Material principle:
Material principles or concepts are accounting principles that relate to the relevance of information and the scope and nature of transactions reported in the financial statements.
Based on this concept, financial information is a document if the deletion and its additions can confuse the user's decision. The same size and nature of financial information may relate to an organization's financial statements, but may not be relevant to other information.
For example, the misappropriation of Apple's $ 50 billion revenue is not material, compared to its total revenue of $ 500,000. However, 50K is the material for DEF financial statements, and in particular it can be misleading to consumers' decisions if it is over or under recognition when the total revenue is only $ 100K.
This principle is not only used by the accountant to prepare the financial statements as a basis for deciding the financial transactions and events that are the material for the financial statements, but it is also used by the auditor to calculate tolerable errors. Performed results as well. Such as material planning.
These raw materials are used as a matrix or instrument for the auditor to determine whether an unreasonable transaction or amount is the material for the financial statements. This unreasonable transaction or amount is part of the auditor's evidence to support their opinion.
10) Monetary unit principle:
Monetary unit assumptions are accounting principles that relate to the evaluation of transactions and events that an entity records in its financial statements. In monetary assumptions, transactions or even can be recorded in the financial statements unless they can be measured in currency.
There are many operations that take place in and by the unit on a daily basis. Not all transactions are recorded in the financial statements. For example, a salesperson has an accident and the unit has to pay for the accident and the hospital.
The entity may record these expenses in the income statement, but the entity cannot record expenditures where the performance of sales staff is low due to accidents.
The financial transactions and financial events of an entity are monetized in the financial statements for a variety of reasons. Some documents include:
Simple and easy to use. Money is simple to use and easy to understand, so it is easy to use to record business transactions. Easy to understand users.
Recognize and communicate in a university style. Money is generally and universally used in normal business operations.
The monetary unit used to record financial statements should be as stable as the US dollar. Unstable currencies are not applicable for use as a unit to record financial statements.
The entity uses the monetary unit to record financial transactions and events. The value of assets recorded in the financial statements is changed due to inflation.
11) Reliable principles:
The principle of reliability is the accounting principle related to the reliability of financial information.
Shown in an entity's financial statements. This accounting concept is really important for financial information users. If the information is unreliable, the decision is likely to be incorrect.
12) Income recognition principle:
There are several principles used to identify income in financial statements. For example, accrual basis or cash base. In principle, revenue accumulation accounting should be recognized when risks and rewards are transferred.
Here are the details of the income recognition policy.
13) Term policy:
Term policy or periodic policy Organizational financial statements can be prepared on an artificial basis. They do not need to be prepared based on regulatory requirements.
Here are the details of the Period or Periodic Principles
Post a Comment