Why it is important to have accounting concepts and principles?
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The Importance of Accounting Concepts and principles
- Category :Accounting
This article speaks about the concepts and principles of accounting. It also discusses as to how they are important in accounting field.
Accounting system is based on some concepts and conventions. Accountants all over the world would agree on certain basic points on which accounting theory and practice is based being commonly referred to as accounting concepts and principles. They are considered as a broad set of conventions that are meant to provide basic frame work for financial reporting. The importance of these concepts and principles lies in the fact that they are related to the entire Financial accounting process while they affect directly the way the financial reports are prepared. Accountants need to apply professional judgments while preparing financial reports, these concepts and principles help them to ensure that they are not being misled and that providing a true and fair view of financial statements is being accomplished.
Following is a list of the major accounting concepts and Principles:
- Timeliness
- Faithful Representation
- Reliability
- Neutrality
- Matching Concept
- Prudence
- Completeness
- Entity Concept
- Money Measurement Concept
- Understandability
- Comparability
- Consistency
- Materiality
- Going Concern
- Accruals
- Substance Over Form
- Duality Concept
- Realization Concept
Understanding the accounting concepts and principles properly is necessary for anyone who is willing to make career or working in the accounting field. If these concepts and principles are followed in the professional work in a way as needed, accountants can save money, energy time and efforts, while a good grasp of these concepts and principles enable them to work effectively and efficiently.
Also, it’s worthwhile to note that the accounting concepts and principles is of great help and assistance to the professional accountants to consider and apply what is best in the interests of the users of financial information in case an accounting concept or principle leads to create conflict with that of another. In addition, after you acquire a good knowledge of accounting principles, most accounting topics will make more sense to help you perform the related activities in a more professional manner. Thus, the accounting concepts and principles are important for accountants, as they need to abide by them every time they involve in analyzing, recording, summarizing, reporting and interpreting financial transactions of a business.
Mention deserves to be made about GAAP – Generally Accept Accounting principles. It’s an international convention of good accounting principles. GAAP is based on the core following principles:
- Business Entity Concept
- Going Concern Concept
- Principle of Conservatism
- Objectivity principle
- Time period principle
- Revenue recognition principle
- Matching Principle
- Cost Principle
- Consistency Principle
- Materiality Principle
- Full Disclosure Principle
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