The accounting principles they are related to financial aspects and economic entities, basic and those that are generally accepted. From them, the professional must always keep them in mind because they are the ones who guide them to carry out their accounting work, since you will understand all of them below, but above all you must know what they are and what they are for the professional.
What are the principles of accounting
The accounting principles They are the guidelines that govern the treatment, quantification and communication of everything that concerns the financial aspects of an organization, which is carried out by accounting professionals, that is, by the accountant.
What are they for?
In principle they serve as a technique to prepare financial statements in order to faithfully express the assets, the results of the company and the financial situation.
All countries develop the principles of accounting both when it comes to private or government companies.However, sometimes the accounting information may not be sufficient for the correct interpretation of the account balances, so in these cases it is annexed to the statements. financial statements, the Report that includes the explanations that are needed so that it can be understood.
Characteristics of accounting information
Above all, the accounting information must be faithful to the equity and show characteristics such as:
- Any professional who has accounting knowledge must understand it, consequently it must be understandable.
- It must be a correct type of information that allows decisions to be made, without unnecessary information and therefore has the characteristic of being relevant without redundancies.
- The information must not present significant errors, so it will be reliable information.
- Taking into consideration a long time, it must present equality of criteria.
- Given its reliability, it must be verifiable by being contrasted, since it must not present details of having been tampered with.
Examples of accounting principles
Among the main accounting principles is that of equity where morality and ethics prevail when the economic measures of the company are determined with impartiality between the state and the company in which the professional in charge of accounting matters works.
- Suppose a company has 3 shareholders, whose names are A, B, and C.
30% of the shares correspond to shareholder A.
33% of the shares correspond to shareholder B.
And 37% of the shares are owned by shareholder C.
When the profits amount to a certain amount, the three shareholders will receive an amount calculated with an equitable distribution according to the profits.
If the profits were 100,000, A would receive 30,000, B would receive 33,000, and C would receive 37,000.
- Suppose that a company administrator buys a personal object of a certain value and presents the payment receipt to the accounting area with the objective of having the money reimbursed.
The accountant as responsible for the accounting area under the principle of equity will tell that administrator that the company has policies that do not allow including personal expenses to be assumed when the reasons do not represent the needs of the company.
Basic principles of accounting
The basic principles of accounting are 9:
- The monetary unit. It is an accounting principle that establishes that all accounting events are measured in a monetary unit that will be the common denominator to prepare the financial statements. Its objective is that the heterogeneous becomes homogeneous.
- Of sufficient disclosure. This principle obliges the accounting professional to provide accurate and faithful information to be able to make a correct decision, for this they can use clarifying notes and information that they consider useful for those who are in charge of reading the financial statements.
- Cost principle. The recording of transactions must be objective, as it is one of the fundamental principles of accounting that gives rise to an adjustment of the numerical expression when there is a change in the value of the currency, that is, it does not alter the principle cost.
- Principle of conservatism. It is the one that allows the accountant to record the losses when they are known and to record the gains when they are realized, since there are accounting alternatives in which the accountant is free to choose those of greater optimism for the company.
- Confrontation principle. In order to determine the net profit, the expenses incurred to obtain income are deducted from this income.
- Beginning of accounting period. The life of the company is unlimited, then it is divided into accounting periods to report the results of operations and the financial situation of the company in said divided period.
- Ongoing business period. The company is in force as of the registration of financial activities. The company will be in the market without defining an exact time and does not interrupt its activities. If operating time is indefinite.
- Entity Principle. It is a principle that indicates that the company has legal status regardless of its owners or shareholders. Accounting applies to rights, obligations and assets of the company, it does not apply to shareholders or owners.
- Consistency principle. When the company makes modifications to the methods that it carries out in each of the short periods, it is difficult to interpret the information and compare the financial statements and therefore variations in the results will be seen.
So if to measure reality, the development of the economy becomes unstable, the method can be changed for a better one while realizing the effect produced on the financial information, always so that a correct decision can be made, therefore they must be justified changes.
Generally Accepted Accounting Principles
- Entity principle. If A is a shareholder of company X, it is a participation that is shown in the equity of the capital stock as an obligation with the shareholder.
For A, the shares of X are an asset, which shows that the entity principle is separated from both assets.
- Principle of economic goods. They are the materials such as the intangible assets of the company that are interpreted as assets and that are useful for their economic operations.
For example, the trademark is an intangible asset with economic value, and to say that it has a monetary value that brings profits to the company.
Material goods are, for example, machinery that has a purchase price.
- Exercise principle. The principle indicates that the results are measured in equal intervals depending on whether one exercise can be compared with another.
For example, every year the measurement of the general accounting plan is carried out.
- Principle of prudence. This principle indicates that economic events are not overestimated or underestimated, they are accounted for by choosing the lowest value for the asset.
For example, if when buying a material good for the company a certain amount of money was paid and after a while that same material good has a lower price, recording it in the accounting takes the lower value of that asset.
- Principle of objectivity: When there are changes in equity, assets and liabilities are measured and recorded objectively.
For example: if shares are bought for a certain value and after a few months those same shares depreciate, but in a few more months those shares will have a higher price than the initial one, an objective record is made with adjustments in accounting and registration. on time.
- Common currency principle: The financial statements must be registered in a common currency that will be the legal currency where the company operates.
For example, the activities of a Brazilian company will record their activities in reais, while a Peruvian company will record them in Peruvian Nuevos Soles.
- Entity principle: The financial statements have to do with the company and not with the owner, as this is a third party.
For example, X owns a company from where he gets a salary and a property is bought with his salary, because the company, although it belongs to him, does not assume his personal expenses.