In the modern world, since creditors, employees, tax authorities, investors, the public, and the government are all interested in understanding company affairs, no company can keep secrets. The business of an enterprise can be studied mainly by consulting the final accounts and balance sheets of specific enterprises. Final accounts and balance sheets are the final products of bookkeeping. Due to the importance of these statements, it is necessary for accountants to formulate some principles, concepts and practices, which may be regarded as the basis of accounting. This widely accepted basic principle makes the financial statements prepared by accountants reliable and credible. There are two reasons why “generally accepted principles of accounting” are needed: first, there must be logical consistency when recording transactions, and second, there must be established conventions and procedures.
There is no consensus on basic accounting concepts between accountants. Generally accepted accounting principles (GAPP) are not consistent. The terms “axiom”, “hypothesis”, “convention”, “concept”, “generalization”, “method”, “rule”, “doctrine”, “technique”, “hypothesis”, “standard” and “norm” are the same The meaning of is used freely and inconsistently.
In Principle – Basics of Accounting
“Adopt or claim to act as a guide to action, the basis of resolution or the general law or rule of practice.” The definition given by the dictionary is closest to describing the meaning of the term “principle” of most accountants. It should be noted clearly that the world principles applicable to accounting practices worldwide do not mean rules without deviations. Accounting principles are not principles in the sense that they recognize no conflict with other principles.
Refers to a position that is assumed without evidence and is taken for granted or agreed. Hypotheses are hypotheses, but they are not arbitrary deliberate hypotheses, but are generally accepted hypotheses that reflect the judgment of “facts” or trends or events. These hypotheses were confirmed by the facts assumed by legal institutions in the past, so they can be implemented to a certain extent.
The average principle of faith: the teaching of the Bible on any subject. It refers to the established principles of teacher communication and strictly adheres to them. However, in accounting practice, there is no need to follow such a doctrine, and the term indicates a general principles of accounting or policy to be followed.
No one can question the statement of truth.
The International Accounting Standards Board (lASC) consider the following (following IAS-I and AS-I) as basic accounting assumptions:
(1) Continuous operation
In the usual process, accounting assumes that the business will continue to exist and continue to operate indefinitely in the future. It is assumed that the entity keeps running long enough to execute its goals and plans. The value attached to the asset will be based on its current value. Assume that the fixed asset is not going to be resold. Therefore, it can be argued that the balance sheet prepared on the basis of historical cost fact records cannot show the true or true value of the concern on a specific date. The basic principle there is that profitability, not cost, is the basis for evaluating continuous business. The business will continue indefinitely and follow financial and accounting policies to maintain the continuity of the business department.
From one period to another period, accounting procedures and accounting policies should be unified. Even if the technology improves, major changes (if any) should be disclosed. Changing the method from one period to another period will seriously affect the transaction results. Only when accounting procedures are followed year after year will the results disclosed in the financial statements be uniform and comparable.
Accountants try to identify non-cash events and occurrences. Accrual basis is related to expected future cash income and payments: this is an accounting process that recognizes assets, liabilities, or income as the amount expected to be received or paid in the future. Common examples of accrual accounting include the sale of goods or services such as credit, interest, rent (not yet paid), wages and salaries, and taxes. Therefore, we record all expenses and income related to the accounting period, regardless of whether actual cash has been paid or received. If (at the time of preparing the financial statements) the basic accounting assumptions (ie continuing operations, consistency and accruals) are not followed, the facts should be disclosed.