Accounting Principles: Concepts and Conventions

The Business Entity Principle in accounting states that:

• The business and its owners are treated as the same entity.

• Transactions are recorded from the point of view of the businessman.

• Business is treated as a separate entity from its owners.

• Non-financial transactions are recorded in the books of accounts.

The Money Measurement Principle in accounting states that:

• All transactions are recorded in terms of money.

• Non-monetary transactions are recorded in the books of accounts.

• The value of money remains constant over time.
  

• Money is the only measure of a business's success.

The Accounting Period Principle in accounting suggests that:

• Transactions should be recorded in the accounting period they occur.

• The life of the business should be divided into smaller periods.

• Financial statements should be prepared annually.

• The performance of the business cannot be measured on a regular basis.

The Full Disclosure Principle requires that financial statements:

• Disclose all significant information about the owners of the business.

• Provide a complete list of all transactions recorded.

• Disclose all significant information relating to the organization.

• Only include information that is deemed material.

The Materiality Principle suggests that:

• Only material transactions should be recorded in detail.

• All transactions should be recorded in detail.

• Non-material transactions should be disclosed in the financial statements.

• Material transactions do not influence decision-making.

The Prudence or Conservatism Principle in accounting states that:

• Probable losses should be provided for, but probable gains should be recognized.

• Probable gains should be provided for, but probable losses should be recognized.

• Both probable gains and losses should be recognized immediately.

• Only actual losses should be recognized.

The Cost Concept or Historical Cost Principle requires that:

• Assets should be recorded at their market value.

• Assets should be recorded at their lower of cost or market value.

• Assets should be recorded at their cost price.

• Assets should be recorded at their selling price.

The Matching Cost or Matching Principle states that:

• Expenses should be matched with revenues of the same accounting period.

• Expenses should be matched with revenues of different accounting periods.

• Revenues should be matched with liabilities.

• Revenues should be matched with assets.

The Dual Aspect or Duality Principle in accounting states that:

• Every transaction has a dual effect and should be recorded in two places.

• Every transaction has a single effect and should be recorded in one place.

• Transactions should be recorded based on personal bias.

• Assets should always equal liabilities.

The Revenue Recognition Principle states that revenue should be recognized:

• When payment is received for a sale.

• When ownership of goods or services is transferred.

• When payment is due for a sale.

• When goods or services are produced.