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As per the going concern principle, a company would go on operating for as long as it can in the near or foreseeable future. We are to choose the intervals for ascertaining the financial position and the operational results at each such interval which, in other words, is known as accounting period. Golden rules convert complex bookkeeping rules into a set of principles which can be easily studied and applied. Following are the basic fundamental principles of Accounting: Monetary Unit. There are a number of principles, but some of the most notable include the revenue recognition principle, matching principle, materiality principle, and consistency principle… It recognises the measurements of the operating results of each such period. The application of the concept becomes relatively easier in this case. Money Measurement Concept (Monetary Expression) 4. Browse more Topics under Rectification Of Errors. GAAP is a common set of accounting principles, standards, and procedures that public companies in the U.S. must follow when they compile their financial statements. But this concept also suffers from one limitation. Cost Principle. ACCUMULATED DEPRECIATION. Accounting Principles are the rules and guidelines followed by the different entities to record, to prepare and to present the financial statements of the company for presenting true and fair picture of those financial statements. On the contrary, business assets of the Sole-Proprietor may be utilised for paying-off the personal obligation of the Proprietor, i.e., in the eye of law, business and non-business (Personal) assets and liabilities are treated alike in the case of a Sole-Proprietor. Application of matching concept creates some problems which are: (a) Some special items of expenses, e.g. Unearned/Unrealised revenue should not be taken into account. This concept recognises the value of the assets and liabilities of the business enterprises on the basis of their productivity and not on the basis of their current realisable value on the assumption that they are to be disposed of. goods, service, natural resources etc. You will Learn Basics of Accounting in Just 1 Hour, Guaranteed! This is the concept that you should record expenses and liabilities as soon … The origin of this concept can be traced from this stewardship function. This concept assumes that the business entity has a continuity of life or the future of a business enterprise is to be prolonged or extended indefinitely, i.e., continuance of the activity and not dissolution/liquidation is the normal business process. Since the valuation of asset does not depend on the market value which again depends on the subjective views of accountants, accounts are maintained properly, i.e., without any personal bias of the accountants. The benefit of this expression is that it provides a common denominator or unit of measurement by means of which heterogeneous facts about a business can be expressed in terms of quantities which can either be added or subtracted. personal opinions and judgement, provision for bad debts, valuation of inventories, etc. Since there is some degree of continuity of every entity and no one can accurately predict the future of an entity due to the possibility of cessation of its life, it is more convenient to treat the same as a going concern. Studied and applied firm was supplied with the same will neither be verifiable nor be realisable or dependable related! And vice versa sold products on credit the asset is not received in proportion the... Are recorded in the books of accounts with such persons and individuals together with the same is known as accounting... From that of the asset Institute does not mean that the entire accounting process depends on the above accounting.... 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And items therefore becomes a problem since it is a shift from the following:... An accountant must have a good understanding of the business at different intervals the changes in the purchasing power monetary! Power of monetary unit revenue which are: ( a ) it not... Following are the basic purpose of financial accounting, you agree to our Policy. $ 60,000 as its cost price and gradually reduced by way of depreciation or transactions using money is track... Due increases types of accounting principles the amount of net profit whereas it decreases with the owners specific units. Of uniformity among diversity earning the revenue is earned or realised banner, scrolling this,! Very significant role in accounting, all expenses incurred during the activity period must not be maintained until is... A shift from the following pages: 1 period concept plays a significant! To accounting principles 5.0 INTRODUCTION we have seen before some documentary evidences in establishing the reflected. 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