Accounting Principles Flashcards

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Business entity principle / Accounting entity

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The business entity principle states that a business is treated as completely separate from its owner, meaning personal assets and spending of the owner do not appear in the business's accounting records.

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Consistency principle

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The consistency principle requires that once a method of accounting is selected, it must be used consistently from one accounting period to the next to allow for accurate comparison of financial results.

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Duality principle

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The duality principle, also known as the dual aspect principle, refers to the concept of double entry in accounting, where two aspects of a transaction are recorded - once

on the debit side and once on the credit side.

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Going concern principle

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The going concern principle assumes that a business will continue to operate indefinitely and has no intention to close down or significantly reduce its size.

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Historic cost principle

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The historic cost principle requires that all assets and expenses are recorded at their actual cost in the ledger accounts.

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Matching principle

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The matching principle, or accruals principle, states that revenue for an accounting period should be matched against the costs of the same period, ignoring the timing of actual receipts and payments.

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Materiality principle

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The materiality principle means that individual items which will not significantly affect either the profit or the assets of a business do not need to be recorded separately.

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Money measurement principle

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The money measurement principle states that only information that can be expressed in monetary terms can be recorded in accounting records.

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Prudence principle

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The prudence principle ensures that accounting records present a realistic picture of the business's position, prohibiting the deliberate understatement of assets or income and overstatement of liabilities or expenses.

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Realisation principle

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The realisation principle emphasizes that a profit should not be recorded until it has actually been earned, meaning revenue is recognized only when legal title passes from seller to buyer.