![]() Accounting principles must be based on realistic assumptions.There are certain preconditions to be met by accounting principl es such as: The applied basic accounting principles should help in maintaining uniformity in reporting, recording, and tracking financial transactions. You and your accountant may choose one method of accounting while your vendors and clients may use some other form of accounting. This justifies the financial reporting and its current practices. The body of doctrines or accounting principles is associated with the theory of the accounting method. This helps get efficient reports and accurate financial statements when viewing an organisation’s reports or statements like the Balance Sheet or Profit and Loss Statements. They set up certain protocols, accounting concepts and standards, that all businesses and companies should and are expected to follow when accounting. The Generally Accepted Accounting Principles (GAAP) ensure that financial statements are accurate and consistent in recording and tracking financial records uniformly and globally. That’s why accounting principles are needed to provide a form of standardisation and uniform reporting of financial statements and accounting practices. ![]() Financial data and statements would be useless in evaluating businesses, as there would be no common format or principle followed when preparing the financial statements. Businesses themselves will find it hard to evaluate their performance, compare their competitor’s financial statements or approach each other for raising funds, supplying goods, etc. Thousands of different formats in financial statements would be present for the same financial information. Need for accounting principlesĬonsider the possibility of every business having its principles of accounting and preparing its financial statements. However, the objectives, fundamentals and core accounting principles of all GAAP procedures are identical. The authorities and regulators in each country, like India, USA, UK, etc., have different GAAP procedures in accounting. The accounting principles and concepts have global acceptance and bring an acceptable format and accounting uniformity when preparing financial statements. They form the base guidelines used in preparing and recording a firm’s financial statements and are also called the Generally Accepted Accounting Principles (GAAP). ![]() The standard guidelines or rules used in accounting are recording and tracking a business’s financial transactions and drawing up the financial statements from records. ![]() Both external and internal stakeholders, banks, regulators, tax authorities and other institutions use these business financial statements to assess the organisation’s health and credit facilities. The tracking and recording of a business’s financial transactions through efficient accounting help evaluate an organisation's financial performance. Therefore, accounting software has become a necessity for businesses to do their daily accounting. Modern times have resulted in the inclusion of the latest technologies. Regardless of business size, accounting and basic accounting principles are a crucial part of the business and have remained so from time immemorial.
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