Understandability Concept

Understandability concept is one of the qualitative accounting principles. This concept requires that the transactions and events should be presented in financial statements in such a way that users of it can easily read and understand it. A user here…

Prudence Concept

Prudence concept is a fundamental accounting principle which requires the accountant to record the expenses and liabilities as soon as possible. On the other hand, prudence principle requires accountant to record revenues only when they are assured or actually realized. It is also called conservatism principle. …

Substance over Form

In order to present true and fair view of the financial statements, accountants need to reflect transactions over the basis of economic substance rather than over the legal form. Substance over Form is a major accounting principle and its applicability…

Materiality Concept

Materiality is one of the main accounting principles and has a vast effect in the preparation of the financial statements. In order to judge whether the information is material or not, one has to judge its effect over the financial…

Relevance and Reliability

Relevance and reliability are the two main accounting principles. By relevance we mean the information available for a given set of financial figures in order to accommodate the user of the financial statements in making an informed decision.  On the…

Matching Principle

Matching principle is one of the fundamental accounting concepts and has great importance as well. It emphasizes that expenses should be recorded in the period in which the related revenues are earned. The application of this principle invalidates the cash…

Historical Cost Concept

Accounting transactions are recorded on the date when they incur.  So, they remain reflected on the value at which we have recorded them. So, a transaction recorded for sales revenue in the last 5 years ago will stay be there…

Full Disclosure Principle

Full disclosure principle requires that financial statement must disclose all the material information whether on the face or in notes to the accounts. This concept is very closely related to the materiality concept of accounting. The purpose for this is…

Revenue Recognition Principle

Revenue Recognition Principle states that revenue should only be recognized when the risk and rewards associated with the goods and services has also been transferred to the buyer.  This concept is a cornerstone of accrual basis of accounting as revenue…

Time Period Principle

Companies are setup to run for the long term business operations. But as far as the reporting of financial transactions are concerned, we need to do that over a certain time period such as monthly, quarterly, half yearly and annually.…