Why Is It Important To Know The Basic Principles Of Accounting?

If you are interested to know about the basic principles in accounting, then this article is a good read for you. This topic is not only for accounting students but as well as for businessmen so that they can know the economic status of their business. In this article, you can know about the basic principles, the basic constraints and assumptions that make up the standard principles in accounting. If you are a businessman, you need to know the rules in accounting in your place and you must learn to follow these standards for your business records. It is also use to make sure that businesses can report and record their losses and earnings in a specific period of time. If you are a businessman, you need to know these rules and standards given by the government and board of your place.

 

If you are an accountant, you don't have to worry because you are not obliged to follow these standards. However, these rules must be followed carefully for all types of businesses. This is because they set standards for all activities to ensure everything is done properly, with accounting data that are comparable and understandable.  In this article, you can know the basic principles in accounting as well as their brief description. There are videos on accounting that you can watch, and one of which is found here: https://www.youtube.com/watch?v=juP4gonp7s8.

 

The first principle is the cost principle. If you own a business, you must report and record all your assets depending on the actual income you received. This is a good principle since every report can be trusted and decreases the opportunity to having biased market values that can hinder accounting. This is useful when it comes to the assets' actual value.

 

The next principle is the accrual formula principle. In this kind of principle, a company must report and record their revenue the time they got and realized it. The good thing about this method is that businessmen can easily identify the works already done and the works needed to be completed in the future.

 

The next principle is the matching principle. This is for real time analysis for both revenues and expenses of the company. This is an important principle for the business to know its performance when it comes to finances and how effective the works have done. Just like the accrual principle, the company can only record the expenses once they received or have earned the revenue.

 

The last principle is the disclosure principle. When it comes to business, all AR turnover records need to be disclosed so that they can easily make steps on how to improve the financial status of the company.