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 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…
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 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 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…
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.…
Monetary unit assumption is a concept which requires that accounting transactions and relationships can be measured and recorded in monetary terms only. It is also called Money Measurement Concept. Under this concept, we cannot record only information for which we…
Going Concern Concept is the basic concept behind the preparation of financial statements. Every year, when financial statements are prepared, they are made on the assumption that the operation of the company will continue for the foreseeable future. However, if the…
In accounting, we treat business and the owners two different person. This is we called as Business Entity Concept. All the transactions which are relevant to the owner(s), are treated separately and are not mixed with accounting for business. This…
Accrual accounting is one of the basic accounting principle and is followed all over the world. According to this principle, revenues should be recognized when they are earned, no matter payment is received or not. On the other hand, expenses are…