When entering the accounting career, there are basic accounting principles that are important in the accounting and financial reporting process of any business unit or enterprise. The following article by MISA MeInvoice provides information on 7 basic accounting principles and 5 additional accounting principles that everyone needs to master.
Note: Before learning about accounting principles, you can first learn about the overview of the accounting industry and the jobs and career paths of accountants
What are accounting principles?
Accounting principles are a set of regulations that are standardized, conventionalized and applied by companies and organizations in the accounting and financial reporting process.
See more: What is accounting? Things to know about accounting
Correctly applying accounting principles helps the accounting information provided, summarized, … to be authenticated to a certain level of reliability.
Accounting often applies many principles, mainly including 7 basic accounting principles, specifically as follows:
7 basic accounting principles
Accrual basis principle
Regulates financial and accounting transactions of enterprises related to assets, liabilities; revenue, expenses, equity capital, etc.
It is necessary to record information carefully in the accounting books at the time of occurrence; regardless of the actual time of receipts and payments or similar;
With financial reports prepared on the accrual basis principle, readers can clearly understand the financial situation in the past, present and future of that company;
The principle helps to realize that all economic transactions must be recorded immediately in the accounting books at the time of occurrence of transactions instead of based on actual receipts and payments;
Going concern principle
All financial statements must be prepared on the assumption that the enterprise is and will continue to operate and produce in the near future.
In case the reality differs from the assumption, the report must be prepared on another basis and have a satisfactory explanation of that basis.
The accountant must not set up a reserve account and follow the operating principle;
The reserve must not be valued higher than the value of the asset and the income must not be lower than the value of the payable as an expense;
Revenue and income must only be recognized when there is certain evidence of the ability to generate economic benefits;
Costs are recognized when it is possible to demonstrate the possibility of incurring costs.
Historical cost principle
The company’s assets must be recorded at original cost, in which the original cost is the price the company must pay to acquire that asset;
The original cost is calculated based on the amount of money or value equivalent to the amount paid, payable or calculated according to the fair value of the asset determined at the time the asset is recorded;
Accountants are not allowed to arbitrarily adjust when the original cost of the asset changes except in other cases prescribed in the accounting law and accounting standards.
Matching concept
There must be appropriate compatibility between revenue and expenses
When the person recording revenue must provide the corresponding related expenses;
Costs corresponding to revenue include expenses corresponding to the revenue in the period incurred, which will help the company analyze and accurately calculate the taxable income of the enterprise
This is the basis for calculating the corporate income tax that must be paid to the state.
Consistency principle
Consistency is necessary in an accounting period between the accounting policies and methods applied by the company;
If there is a change in one or both of the accounting policies and methods, it is necessary to supplement the explanatory report explaining the reasons and factors affecting that change.
Prudence concept
This principle stipulates that accountants must always make judgments and consider carefully to make accounting estimates under uncertain conditions;
Prudence means not making too large provisions, not overestimating the value of assets and income, and not underestimating payables and expenses;
Revenue and income are only recorded when the accountant has solid, authentic evidence of the possibility of economic benefits, similarly, there must be authentic evidence of the possibility of occurrence before expenses can be recorded.
Materiality concept
The materiality principle expressed through information depends on the magnitude and nature of the information or errors in certain circumstances;
When there is a lack of information or information that is not highly accurate, it can cause errors in financial statements
The materiality of information needs to be considered in both qualitative and quantitative aspects;
In addition, accountants can also refer to and apply the following 5 additional accounting principles in accounting and financial reporting;
III. 5 additional accounting principles
Objective principle
All financial reports and documents of an organization or enterprise must be based on objective and reliable evidence;
Applying the objective principle helps management
