6 Accounting Principles You Must Know

The Accounting Principles represent the essence of the doctrines and theories related to Accounting Science, according to the prevailing understanding in the scientific and professional universes.The principles are applicable to accounting in its broadest sense of social science, whose object is the Entity’s Equity.

Accounting Principles are:

1) that of the ENTITY; 2) that of CONTINUITY; 3) OPPORTUNITY; 4) that of REGISTRATION BY ORIGINAL VALUE; 5) that of COMPETENCE; and 6) that of PRUDENCE.

THE PRINCIPLE OF THE ENTITY

The ENTITY Principle recognizes Equity as an object of Accounting and affirms equity autonomy, the need to differentiate a particular Equity in the universe of existing assets, regardless of whether it belongs to a person, a group of people, a society or institution of any nature. or purpose, with or without profit.

Consequently, in this sense, Equity is not to be confused with those of its partners or owners, in the case of a company or institution.

THE PRINCIPLE OF CONTINUITY

The Continuity Principle assumes that the Entity will continue to operate in the future and, therefore, the measurement and presentation of equity components takes this circumstance into account.

THE PRINCIPLE OF OPPORTUNITY

The Principle of Opportunity refers to the process of measuring and presenting equity components to produce complete and timely information.

THE PRINCIPLE OF REGISTRATION BY ORIGINAL VALUE

The Original Value Registration Principle states that equity components must be initially recorded at the original transaction values, expressed in national currency.

Once integrated into equity, the equity components, assets and liabilities, may change due to the following factors: a) Current cost. Assets are recognized at the amounts in cash or cash equivalents, which would have to be paid if those assets or equivalent assets were acquired on the date or in the period of the financial statements. Liabilities are recognized at the amounts in cash or cash equivalents, not discounted, that would be necessary to settle the obligation on the date or in the period of the financial statements;

b) Realizable value. The assets are held at cash or cash equivalents, which could be obtained by selling in an orderly manner. The liabilities are maintained at the amounts in cash and cash equivalents, not discounted, which are expected to be paid to settle the corresponding obligations in the normal course of the Entity’s operations; c) Present value. Assets are held at present value, discounted from the future net cash inflow that is expected to be generated by the item in the normal course of the Entity’s operations. Liabilities are maintained at present value, discounted from the future net cash outflow that is expected to be necessary to settle the liability in the normal course of the Entity’s operations;

d) Fair value. It is the amount for which an asset can be exchanged, or a liability settled, between knowledgeable parties, willing to do so, in an unfavorable transaction; and e) Monetary restatement. The effects of changes in the purchasing power of the national currency must be recognized in the accounting records by adjusting the formal expression of the values ​​of the equity components.

THE PRINCIPLE OF COMPETENCE

The Competence Principle determines that the effects of transactions and other events are recognized in the periods to which they refer, regardless of receipt or payment. Single paragraph. The Competence Principle presupposes the simultaneous confrontation of revenues and related expenses.

THE PRINCIPLE OF PRUDENCE

The PRUDENCE Principle determines the adoption of the lowest value for the components of the ASSET and the highest for those of the LIABILITY, whenever alternatives are equally valid for the quantification of equity changes that alter the Shareholders’ Equity .

 

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