DR.P.

ANBUOLI

Accounting principles are man-made.

These are based upon the logical and

practical experience of day-to-day accounting process.

A general law or rule adopted as a guide to action

Business entity concept Reliability concept Money measurement concept Going concern concept Cost concept Accrual concept Accounting period concept and Realization concept

The business and its owner(s) are two separate existence entity

Any private and personal incomes and

expenses of the owner(s) should not be treated as the incomes and expenses of the business

Insurance premiums for the owners house

should be excluded from the expense of the business in the account of the business

The owners property should not be included

Any payments for the owners personal

expenses by the business will be treated as drawings and reduce the owners capital contribution in the business

 It is a quality of information that assures

decision makers that the information captures the conditions or events it maintains to represent
Reliable data require convincing evidence that

can be verified by independent auditors

 An Accounting record is made only of

information which that can be expressed in monetary terms.

All transactions of the business are recorded

in terms of money

Market conditions, technological changes and

the efficiency of management would not be disclosed in the accounts

 The business will continue in operational

existence for the foreseeable future

Financial statements should be prepared on a

going concern basis unless management either intends to liquidate the enterprise

 Possible losses form the closure of business

will not be anticipated in the accounts

Prepayments, depreciation provisions may be

carried forward in the expectation of proper matching against the revenues of future periods

Fixed assets are recorded at historical cost

 Assets should be shown on the balance sheet at the

cost of purchase instead of current value

Example The cost of fixed assets is recorded at the date of acquisition cost. The acquisition cost includes all expenditure made to prepare the asset for its intended use.
It included the invoice price of the assets, freight

charges, insurance or installation costs

 The recording of the financial transaction is made

when the transaction takes place itself and not when the cash for the transaction is received, as in cash concept
The cash is received after a period of time but the

transaction is already noted in the books of transaction

 Monitor the performance of the organization

periodically
One accounting period will be considered Calculating accounts for more than one accounting

period will be tedious

 Revenues should be recognized when the major

economic activities have been completed

Sales are recognized when the goods are sold

and delivered to customers or services are rendered

 Accounting concepts will help process the

information effectively at low cost.

It helps to obtain reports quickly. It helps in proper planning and decision making. we can know employees performance towards

promoting sales.