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Basic accounting principles
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Basic accounting principles
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Basic accounting principlesCost principle - answer Cost refers to the amount spent when an item was originally
obtained, whether that purchase happened last year or 10 years ago; amounts are
not adjusted upward for inflation. The amounts shown in financial statements are
referred to as historical cost amounts
Full disclosure principle - answer In preparing financial statements, the accountant
should include sufficient information to permit the stakeholders to make an
informed judgement about the financial condition of the enterprise.
Matching principle - answer Requires that expenses be matched with revenues. Meaning,
in a given accounting period, the recorded revenue should have an equivalent
expense recorded, in order to show the true profit of the business.
Revenue recognition principle - answer Revenues are recognized as soon as goods have
been sold or a service has been rendered, regardless of when the money is actually
received.
Materiality principle - answer Business transactions that may affect the decision of a
user of financial information are considered important or material, and thus, must
be reported properly.
Conservatism principle - answer States that given two (2) options in the valuation of
business transactions, the amount recorded should be the lower value rather than
the higher value.
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