What Are Accounting Principles?
Accounting principles are standardized guidelines that govern how financial statements are prepared and reported. They ensure consistency, reliability, and comparability of financial information.
Key Takeaways
- Definition: Rules and guidelines for financial reporting.
- Purpose: To ensure accurate and consistent financial statements.
- Examples: GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards).
Common Accounting Principles
- Revenue Recognition Principle: Revenue is recognized when earned.
- Expense Recognition Principle: Expenses are recognized when incurred.
- Historical Cost Principle: Assets are recorded at their original cost.
- Full Disclosure Principle: All relevant information should be disclosed in financial statements.
Importance of Accounting Principles
Adhering to accounting principles ensures transparency, builds trust with stakeholders, and enhances the reliability of financial statements.
