When it comes to accounting or management there are a few basic principles which every management graduate, ACCA or CA should know. The accounting principles set the foundation for any financial course for that matter. One should know the exact definition of what the principle is as well as how it is used in accounting.
The following principles are the basic to accounting which cannot be neglected:
Going concerned:
The basic point in this principle is that every entity is assumed to continue its operation in the foreseeable future. It is hence assumed that the entity does not have any intention to liquidate or curtail its operations. If such a case arises then the financial statements have to be prepared in a different manner.
Consistency:
This principle is basically to state the fact that it is essential to use the same methods for the same items. This is one of the straightforward principles and it insists that once an organization decides to use a particular method then it has to stick to the same method for all its transactions.
Double-entry :
Every transaction gives rise to both a debit entry and a credit entry. This is the most fundamental principle that states that every financial transaction has dual aspects, in simple terms giving and receiving. This principle requires the understanding of assets and liabilities as to which transaction will be given credit entry and which will be given debit entry.
Business entity concept:
According to this principle, business and entity are to be considered as two different concepts. The transactions of the owner are different from that of the transactions of the entity. Here is where the concept of sole trader and others come up.
Historical cost:
This is also known as the money measurement concept. According to this principle, only those transactions which could be expressed in terms of cash or money can be recorded. This means assets and liabilities will continue to be recorded at the value at which they were initially recorded.
Accrual accounting:
This means that the date on which cash is paid or received is not treated as the date on which the transaction exactly occurred. The date is that on which the transaction actually took place.
You will get to know about these principles one by one as you learn online ACCA courses. There are a lot more principles in accounting but ACCA does not revolve a lot on principles rather it is built on the application of the underlying principles.
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