Accounting is the process of keeping financial accounts. For all accountants there are a set of rules, concepts and principles that govern accounting procedures. If accountants want to be considered legitimate and trustworthy in the field of accounting they are required to follow those concepts and principles to the depth and ensure there is no conflict of interest when they are employed by a business.The basic concepts and principles have been formulated to offer a structure for financial reporting. The major concepts and principles of accounting are below.
The Principles and Concepts
- Relevance- Information ought to be relevant to the decision making process of the business. Relevant information assists a business in making sound decisions to positively impact its future.
- Timeliness – Accountants need to present information in a time that it can be used efficiently in the business’ decision making process.
- Reliability – Reliability in information means that it is dependent and is materially accurate and truthfully represents the information it claims to represent.
- Matching Concept – The matching principle is important as it dictates that a business reports an expense on its income statement in the matching period as its related revenues.Click here to read more information about business financial reporting.
- Neutrality – This concept means that information is not to be biased to favour any party in a business.
- Faithful Representation – This means that information recorded should represent their exact economic substance.
- Completeness – Information presented in financial statements and other reports should not be partial or incomplete as this will adversely affect decision making.Visit https://www.sba.gov/content/making-decisions to read some vise decision making tips.
- Money Measurement Concept – This concept means that financial statements should only contain events and transactions that can be measured in monetary terms.
- Understand ability – financial statements should be presented in a state that is easily understood.
- Importance of the Basic Accounting Principles and Concepts
The principles and concepts of basic accounting are important for anyone who wants to develop a career in accounting. The tasks related to each of the principles can be undertaken in an effective way once the concepts and principles are understood. With practise and application the concepts and principles will become second nature to accountants. The principles and concepts of basic accounting is implemented to ensure fair, just, accurate and complete information used in the operation of businesses. Accountants have to be honest, trustworthy and straight-forward individuals and cannot be biased for or against the business they are accounting work for.
Conflict of Principles and Concepts
The principles and concepts are very clearly defined however if there is a conflict between two, accountants are to use their knowledge and expertise to decide which best applies to the business. There should always be fairness in the practising of accounting and all accountants are taught that basic principle.
The principles are infused into a number of accounting frameworks. These frameworks govern the reporting of business transactions. The principles and concepts act as a guideline in the preparation interpreting and presenting of financial statements and ensure that there is no misunderstanding between the parties which will view and use the information being presented.