This is the concept that, once you adopt an accounting principle or method, you should continue to use it until a demonstrably better principle or method comes along. This concept can be taken too far, where a business persistently misstates its results to be worse than is realistically the case.Ĭonsistency principle. Conversely, this principle tends to encourage the recordation of losses earlier, rather than later. This introduces a conservative slant to the financial statements that may yield lower reported profits, since revenue and asset recognition may be delayed for some time. This is the concept that you should record expenses and liabilities as soon as possible, but to record revenues and assets only when you are sure that they will occur.
For example, if you ignored the accrual principle, you would record an expense only when you paid for it, which might incorporate a lengthy delay caused by the payment terms for the associated supplier invoice.Ĭonservatism principle. It is important for the construction of financial statements that show what actually happened in an accounting period, rather than being artificially delayed or accelerated by the associated cash flows. This is the foundation of the accrual basis of accounting. This is the concept that accounting transactions should be recorded in the accounting periods when they actually occur, rather than in the periods when there are cash flows associated with them. The best-known of these principles are as follows:Īccrual principle. They form the basis upon which the complete suite of accounting standards have been built.
A number of basic accounting principles have been developed through common usage. What are the Basic Accounting Principles?Īccounting principles are the rules that an organization follows when reporting financial information.
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