If you are working in the business field you need to know the essential accounting standards forwards and backward. Accounting is the major language of business. Since every business visionary, leader, supervisor, or understudy needs to comprehend in any event the fundamental accounting standards. Over the long haul, your business will go into exchanges with different organizations and the duty authority. 8 accounting principle for every graduate are discussed below.
The deals should be checked and sorted appropriately, so you can comprehend what has driven the adjustment in your monetary position. With regards to accounting or the management field graduates, there are a couple of essential standards which each graduate, ACCA, or CA should know. The accounting standards set the establishment for any monetary course so far as that is concerned. One should know the specific meaning of what the guideline is just as how it is utilized in accounting
8 accounting principles that graduate should know
1. BUSINESS ENTITY CONCEPT
The business entity concept expresses from an accounting perspective that the business is regarded as being separate from the owner or owners. Or in other words, the business has a separate identity from its owners. This concept is applied to the account of a business. More specifically the concept can refer to the process of recording and reporting the final accounts. Additionally, the business entity concept also distinguishes that the final accounts of a business should only include the activities and transactions of a business. It also states that the account does not include the personal activities, transactions, or even assets and liabilities of individuals who own or run the business.
However, there is one exception to this rule that is an accounting record of a business will only be affected by the owner or owners when they introduce new capital to the business or take a drawing out of a business.
2.MONEY MEASUREMENT CONCEPT
The Money Measurement Concept illustrates that all items should be expressed in monetary terms. In some cases where items cannot be given a monetary value will not be included in the final accounts. This still applies even if the item is responsible for the performance of a business. For example, strong management, market share of industry, and good customer relation cannot be included in the trading profit and loss account or balance sheet because they cannot be given an objective value.
The vital defect in the money measurement concept is that numerous elements can prompt long haul changes in the monetary outcomes or monetary situation of a business, however, the idea doesn’t permit them to be expressed in the budget summaries. The lone exemption would be a discussion of appropriate things that the administration remembers for the exposures that go with the budget reports. Along these lines, it is completely conceivable that the key fundamental favorable circumstances of a business are not uncovered, which will in general under-address the drawn-out capacity of a business to create benefits.
3.DUAL ASPECT CONCEPT
The dual aspect concept states that each business transaction is recorded through two opposing accounting entries. In other words, there are two aspects of accounting for a transaction of a business. One can be represented by the asset of the business and the other by the claims against them. It is very important to note that the two opposing entries and aspects are of equal value i.e. the same amount. The dual aspect concept is compared as an alternative form of the accounting equation of
Asset= Capital + liabilities.
Whereby, if one side of the equation is affected by an amount then the opposite is also affected by the same amount. The double-entry bookkeeping system is a great example of a dual aspect concept in practice. It shows that for every transaction two things are affected. In other terms, there will be a debit and credit entry.
4. ACCRUALS AND MATCHING CONCEPT
The accrual and matching concept implies that the expenses and income recorded shown in the trading profit and loss account should relate exactly and accurately to the period of those accounts. This also means that the expenses that have not been paid for in a period or expenses that have been paid in advance from the previous period but are related to the current period should be recorded. A simple way to remember this in practice is that accruals you add and prepayment you deduct. Under accruals bookkeeping, firms have prompt input on their normal money inflows and outflows, which makes it simpler for organizations to deal with their present assets and plan for what’s to come.
5. PROFIT REALISATION CONCEPT
The realization concept states that the transaction of a business are recorded in the account where the legal title passes between the buyer and seller. The concept is highly associated with the selling of goods and services, the respective revenue must be recognized or realized when the seller transfers the risks and rewards i.e. the legal title associated with the ownership of the goods to the buyer. In most cases, the legal title transfer occurs at the time when the goods are handed over to the buyer. However, sometimes the legal title transfer may not be at the same time as the payment is made. For example, where goods and services are sold on credit they are recorded when it is made but the payment will be made at a later date.
6. CONSISTENCY CONCEPT
The consistency concept expresses that when a business adopts a particular accounting method, it should continue to use the method consists in the future period. The purpose of this concept is to benefit both the business and the user of the account in making more reliable and accurate analysis and comparison across different accounting periods. Besides, if a business needs to change the method, it can do so however, there must be an adequate and sufficient reason for the change. If a business does make a change to the method that it uses, then it is required to make a note in the final account with an explanation for the change.
It ought to be noticed that the expense idea makes issues just comparable to resources that are held by the business undertaking for use over a long haul and where their qualities go through huge changes. Those resources which are acknowledged inside a brief timeframe don’t have this issue, for example, money, government protections.
7. PRUDENCE CONCEPT
The prudence concept states that the final accounts should always report conservative and cautious figures. This includes the figure for the profit and the valuation of the assets. Additionally, the business should not overvalue its profit or asset nor should it understate losses or liabilities. When there is any doubt of valuing an item, the concept suggests that the item is recorded at a ‘prudent’ amount. In other words, it should reflect as a conservative and cautions amount in the account. The concept is applied to the amount of the business in many ways. The most common use of the prudence concept is the creation and application of the provision for depreciation. Another main use of the concept is the practice of the provision for the bad debt or the doubtful debt.
8. COST CONCEPT
The cost concept expresses that assets and liabilities are initially recorded in the final amount at the “cost price”. In other terms, it is the actual amount paid when the asset or liability was originally acquired by a business. The approach of recording the asset and liabilities is regarded as the most objective way of valuing these limits in the amount. This is because those who are valuing or recording the Asset or liabilities in the account are not depending on trying to estimate what the value of the asset or liability might be if it were to be sold.