PRINCIPLES OF ACCOUNTING

GENERALLY ACCEPTED

ACCOUNTING PRINCIPLES GENERALLY

ACCEPTED STANDARDS (GAAP) OR FINANCIAL REPORTING STANDARDS
(NIF)
THEY ARE A SET OF GENERAL RULES THAT SERVE
ACCOUNTING GUIDE
 ACCOUNTING PRINCIPLES

1. Equity
2. Double match 8. Period
3. Entity 9. Accrual
10. Objectivity
4. Enconimics goods
11. Realization
5. common currency
denominator 12. Prudence
13. Uniformity
6. Going company
14. Significance or
7. Valuation at cost relative importance
15. Exhibition
1. Equity
refers to the fact that the accounting information must be prepared fairly
with respect to third parties and the company itself.

Example: In a company there are 3 partners; which are: César, Manuel and Carlos.
César has 45% of the shares, Manuel 35% and Carlos 20%.

If the profits amount to S/.100, then César receives S/.45, Manuel S/.35 and Carlos
S/.20.

Therefore, the shareholders' profits are being distributed equitably.

2. Double match

The principle of Double entry or duality is the basis of the accounting method,
it is defined as: "Every item registered in the Debit corresponds to another
item registered in the Credit" or "There is no debtor without a creditor, nor a
creditor without a debtor" .

Example: Cancellation of invoice to a supplier: Supplier in debit, cash in credit.

3. Entity

The EE.FF always refer to an entity, where the subjective or proprietary

element is considered as a third party.

Ex: Mr. Jhon owns a record label.

Jhon wants to buy a house on the beach, so he spends the salary that
corresponds to him in the company. In other words: “The company does not

assume your personal expenses” because Jhon is considered a third party .

4. Enconimics goods
material and immaterial goods that have economic value and, therefore, can
be valued in monetary terms.
g

Example: As an intangible asset, it can be the ADIDAS brand, which is recognized

and preferred by the public, therefore it can be valued in monetary terms since
it will bring more profits to the company if it acquires the brand. On the
material goods side, they would be the machinery of a company, which is
valued at its asking price.
acquisition .

5. common currency denominator

Generally, the currency that is legal tender in the country in which the entity
operates is used as a common denominator.
g

Example: A Peruvian company that produces sweaters, records its financial

activities in Peruvian nuevos soles (S/.)
6. Going company
It is based on the presumption that the company will continue its operations
for an indefinite period and will not be liquidated in the foreseeable future,
unless there are situations such as: significant and continuous losses,
insolvency, etc.

Example: A construction company has signed a two-year business collaboration

contract (Joint Venture) with a heavy machinery company.
7. Valuation at cost

The cost value -acquisition or production- constitutes the main and basic
valuation criterion, which conditions the formulation of the so-called situation
financial statements.

Example: The company COMPRO TODO SA acquired a machine to make

cookies, which cost $3000, as they brought it from the USA, they spent $1200
on transportation and to fix and prepare the machine in the company for its
operation they charged “$300.
8. Period

It is also known by the name of

«Fiscal period», Companies have an indefinite and unlimited duration;
Consequently, its results are only known until its existence ends.

Example: The measurement of the General Business Accounting Plan is carried

out every 12 months.
9. Accrual
The equity variations that must be considered to establish the economic
result are those that correspond to a fiscal year without distinguishing
whether they have been collected or paid during said period.

7 Ex: I consume water in the month of January.

The receipt arrives in February, so I pay it in February. However, I count the
water consumption in the month of January as an expense, because that is
where it was consumed.
10. Objectivity
Changes in assets, liabilities and in the accounting expression of net worth
must be formally recognized in the accounting records as soon as it is
possible to measure them objectively and express this measurement in
monetary terms.

Example: On 08/29/2014, 10 shares are purchased at $10,000, however at the end

of October their shares are only worth $8,000, but it is expected that at the end of
the year they will cost $12,000.

Therefore, to have an objective record, some adjustments must be made in the

accounting and recorded on time.
11. Realization

The economic results are recorded when they are carried out, that is, when
the operation that gives rise to them is perfected from the point of view of
the applicable legislation or commercial practices and they have been
weighted.

Example: Your friend closes a deal with you, establishing the clauses of the
business and its risks. Therefore, said business can be accounted for since
it complies with the realization principle.
12. Prudence

This general principle can also be expressed by saying: "account for all losses
when they are known and gains only when they have been realized."

Ex: If 1 month ago, I bought a machine at

$200 and the market is now quoting it at $180. In accounting I must take the

lowest value of the asset, that is $180 .

13. Uniformity
While accounting principles are applicable in preparing financial
statements, they should be used consistently from year to year (period to
period) so that they can be compared. Otherwise you must
be indicated by means of an explanatory note.

Example: The installments paid on a loan made by a company must be

considered as expenses - which are - in the corresponding year.
14. Significance or relative importance The
principle of Significance, also called Materiality,
is complementary to two main aspects of
accounting:

a) Quantification or measurement of heritage.

b) Exhibition of items in the EE.FF.

15. Exhibition
The financial statements must contain all the basic and additional
information and discrimination that is essential for an adequate
interpretation of the financial situation and economic results of the
entity to which they refer.

Example: A company delivers its financial statements to its

shareholders with “ALL” the economic activities it has carried out, so
that they can interpret it.