DEFINITION OF 'ACCOUNTING PRINCIPLES'

The rules and guidelines that companies must follow when reporting financial data. The common
set of accounting principles is the generally accepted accounting principles (GAAP). To remain
listed on many major stock exchanges in the U.S., companies must file regular financial
statements reported according to GAAP. Accounting principles differ around the world, and
countries usually have their own, slightly different, versions of GAAP.

INVESTOPEDIA EXPLAINS 'ACCOUNTING PRINCIPLES'

Since accounting principles differ across the world, investors should be aware of these differences
and account for them when comparing companies in different countries. The problem of
differences in accounting principles does not much affect mature markets. Still, investors should
be careful, since there is still leeway for the distortion of numbers under many sets of accounting
principles.

Accounting Principles are classified into two categories

A) Accounting concepts
B) Accounting Conventions
A) Accounting concepts
1)Business entity concept - business is separet entity from
owner
2)Dual Aspect concept - Liabilities = Assets (dr = cr)
3)Going concern concept - business is going to be in
existence for an indefinitely long time.
4)Accounting period concept - Indefinite long period is
divided into short span for accounting purpose.
5)Cost concept - cost of aquisition of assets is considered
for accounting (considering depriciation) and not current
price of assets.
6)Money measurement concept - only facts which can be
measured in money find place in accounting.
7)Matching concept - expences and costs incurred during
period whether paid or not must match the revenue for that
particular period.
B)Accounting Conventions
1) Convention of conservation
2)Convention of Materiality
3)Convention of Consistency

MATCHING

Revenues and Expenses shown on the income statement must be

matched for the period.

BUSINESS ENTITIES

Every business unit/enterprise is treated as a separate entity,

separating the business from the owners.

GOING CONCERN

Unless strong evidence to the contrary, it is assumed that a business

will continue to operate into the future, for a period longer than the life
expectancy of its assets. BASIC ACCOUNTING

PERIODICITY

The environment in which accounting operates requires that the life of

a business be divided into accounting periods of not more than one
year in length and that test readings of the progress of the business be
made at the end of each period.

CONSERVATISM

The accountant should be conservative in his/her estimates and

opinions and in his/her selection of procedures, choosing those that
neither unduly understate nor overstate the situation. BASIC
ACCOUNTING

CONSISTENCY

Consistent application in the company of any given accounting

method, period after

period.

EFINITION OF 'ACCOUNTING POSTULATE'

A fundamental assumption in the field of accounting. Like any field, the present system of
accounting has certain underlying axioms which form the basis of the all further work. Accounting
postulates are generally very well agreed upon and form the foundation of the discipline.

INVESTOPEDIA EXPLAINS 'ACCOUNTING POSTULATE'

Accounting postulates include statements that economic activity conducted by certain identifiable
entities will be continuous, that transactions occur at identifiable times and that the entity will
continue as a going concern. None of these postulates are controversial, however they do
highlight how difficulties can arise in advanced accounting practices.

For example, for certain transactions, there may be disagreement upon the timing for recording
items of revenue and expense. In cases of mergers, there are certain issues with how to most
accurately account for certain items. Guidelines must be developed for these advanced topics so
that they fit within the accounting framework.