What are the 5 basic accounting principles?
Five Basic Accounting Principles
Accounting principles are the fundamental guidelines that govern the accounting processes and ensure consistency and transparency in financial reporting. The five basic accounting principles are:
Accrual Principle
This principle states that financial transactions should be recorded when they occur, regardless of when cash is received or paid. It ensures that income and expenses are recognized in the period they relate to, providing a more accurate picture of financial performance.
Consistency Principle
Businesses should use the same accounting methods and procedures from period to period. Consistency allows for comparability of financial statements over time.
Going Concern Principle
Assumes that a business will continue to operate indefinitely unless there is evidence to the contrary. This affects how assets and liabilities are valued and reported.
Conservatism Principle
When faced with uncertainty, accountants should choose the solution that results in lower profits or asset values. This approach avoids overstating financial health.
Economic Entity Principle
Financial records should be kept separate from the personal affairs of the owners or other businesses. This maintains clarity and accountability in financial reporting.