Accounting Principles: What are they?
Posted: Mon Dec 23, 2024 6:05 am
These are concepts that form the foundations that identify and delimit the operations of companies. With these principles, accounting can be carried out with the guidelines that allow the management of financial information for any organization.
The accounting of any company is developed by applying certain principles, which are usually stipulated by national accounting authorities or by professional associations in each country. In this way, specific guidelines are established so that organizations can keep accounting records with accurate information.
What are the principles of accounting?
In the book Accounting Principles (2004), Mexican accounting professors José Antonio Ibarra Cervantes, Manuel Granado Cuevas and María Eugenia Amador Murguía state that they are “fundamental concepts that establish adequate bases to identify and delimit economic entities, evaluate their operations, regulate the presentation of financial information and represent general requirements applicable to accounting.”
In other words, accounting principles are a set of rules and regulations that set the guidelines for formulating the criteria for measuring the assets , as well as the information on the economic elements of an institution. In this sense, Ibarra, Granado and Amador explain the following classification of Accounting Principles:
Principles that identify and delimit the economic entity
Entity. Identifiable entities have economic activity because they have a combination of human resources, capital and natural resources, which are managed to achieve objectives through decision-making by the authority.
Realization. The operations that an entity carries out with other actors in the business activity and certain economic situations that affect it are quantified in monetary terms.
Accounting period. Companies divide their economic life into periods, which helps them to understand their financial situation and the results obtained. Therefore, any accounting information must indicate the period to which it refers.
Principles that establish the bases for the valuation of operations
Original historical value. Transactions and economic events that are cpa email list quantified must be recorded according to the amounts of cash affected. These must be modified if subsequent events occur that make them lose their meaning.
Going concern. The institution is always presumed to exist, unless otherwise specified. Therefore, the figures reflected in the financial statements will represent historical values or changes in them.
Economic duality. On the one hand, the resources available to the entity to meet its strategic objectives must be taken into account. On the other hand, the sources of these resources must be considered.
Principle that establishes the bases for the presentation of information
Sufficient relevance. All accounting information detailed in the financial statements must express, in a clear and understandable manner, what is necessary to analyze the results of business operations and the financial situation.
Principles presenting the general requirements
Relative importance. All relevant aspects of the entity must be included in the information expressed in the financial statements. These must be specified in monetary terms.
Consistency. Accounting information must be obtained by applying the same particular rules of quantification to know its evolution, by comparing the financial statements and thus knowing its relative position, compared to other companies.
Read this article and learn about accounting information systems .
Objective of accounting
The principles of accounting allow the objective of this discipline to be fulfilled, which is to offer financial information about companies to those who wish to know the results of operations and their real financial situation. With this data, previously analyzed, management will be in a position to make decisions and carry out strategic planning.
In order for shareholders, lenders and public institutions to have access to this information, it is necessary to interpret the historical data. To do this, all activities must be recorded and the economic and financial operations carried out by the organization must be recorded.
By knowing and mastering the Accounting Principles, it is possible to keep a record of activities in a transparent manner, thereby obtaining accurate financial information. With this data, it is possible to meet the company's objectives and make strategic decisions.
The accounting of any company is developed by applying certain principles, which are usually stipulated by national accounting authorities or by professional associations in each country. In this way, specific guidelines are established so that organizations can keep accounting records with accurate information.
What are the principles of accounting?
In the book Accounting Principles (2004), Mexican accounting professors José Antonio Ibarra Cervantes, Manuel Granado Cuevas and María Eugenia Amador Murguía state that they are “fundamental concepts that establish adequate bases to identify and delimit economic entities, evaluate their operations, regulate the presentation of financial information and represent general requirements applicable to accounting.”
In other words, accounting principles are a set of rules and regulations that set the guidelines for formulating the criteria for measuring the assets , as well as the information on the economic elements of an institution. In this sense, Ibarra, Granado and Amador explain the following classification of Accounting Principles:
Principles that identify and delimit the economic entity
Entity. Identifiable entities have economic activity because they have a combination of human resources, capital and natural resources, which are managed to achieve objectives through decision-making by the authority.
Realization. The operations that an entity carries out with other actors in the business activity and certain economic situations that affect it are quantified in monetary terms.
Accounting period. Companies divide their economic life into periods, which helps them to understand their financial situation and the results obtained. Therefore, any accounting information must indicate the period to which it refers.
Principles that establish the bases for the valuation of operations
Original historical value. Transactions and economic events that are cpa email list quantified must be recorded according to the amounts of cash affected. These must be modified if subsequent events occur that make them lose their meaning.
Going concern. The institution is always presumed to exist, unless otherwise specified. Therefore, the figures reflected in the financial statements will represent historical values or changes in them.
Economic duality. On the one hand, the resources available to the entity to meet its strategic objectives must be taken into account. On the other hand, the sources of these resources must be considered.
Principle that establishes the bases for the presentation of information
Sufficient relevance. All accounting information detailed in the financial statements must express, in a clear and understandable manner, what is necessary to analyze the results of business operations and the financial situation.
Principles presenting the general requirements
Relative importance. All relevant aspects of the entity must be included in the information expressed in the financial statements. These must be specified in monetary terms.
Consistency. Accounting information must be obtained by applying the same particular rules of quantification to know its evolution, by comparing the financial statements and thus knowing its relative position, compared to other companies.
Read this article and learn about accounting information systems .
Objective of accounting
The principles of accounting allow the objective of this discipline to be fulfilled, which is to offer financial information about companies to those who wish to know the results of operations and their real financial situation. With this data, previously analyzed, management will be in a position to make decisions and carry out strategic planning.
In order for shareholders, lenders and public institutions to have access to this information, it is necessary to interpret the historical data. To do this, all activities must be recorded and the economic and financial operations carried out by the organization must be recorded.
By knowing and mastering the Accounting Principles, it is possible to keep a record of activities in a transparent manner, thereby obtaining accurate financial information. With this data, it is possible to meet the company's objectives and make strategic decisions.