The “14 Principles of Accounting” is not a universally recognized or standardized set of principles. However, there are generally accepted accounting principles (GAAP) that guide the practice of accounting in many countries, including the United States. These principles provide a framework for recording, summarizing, and reporting financial transactions. Here are the fundamental principles of accounting:
14 Principles of Accounting
- Entity Concept: The financial affairs of a business or organization are separate from the personal affairs of its owners or stakeholders.
- Going Concern Concept: The assumption that a business will continue to operate indefinitely unless there is evidence to the contrary.
- Monetary Unit Concept: Financial transactions are recorded and reported in a common currency (e.g., U.S. dollars).
- Cost Principle: Assets are initially recorded at their historical cost, representing the amount paid to acquire them.
- Matching Principle: Expenses should be recognized and matched with revenues in the same accounting period in which they occur.
- Revenue Recognition Principle: Revenues should be recognized when earned, typically when the goods are delivered or services are rendered, regardless of when the payment is received.
- Time Period Concept: The life of a business or organization is divided into distinct accounting periods for reporting purposes (e.g., monthly, quarterly, or annually).
- Full Disclosure Principle: Financial statements should include all necessary information that could impact the understanding of the statements by users.
- Materiality Principle: Financial information should be disclosed if its omission or misstatement could influence the decisions of users of the financial statements.
- Conservatism Principle: When faced with uncertainty, accountants should err on the side of caution and record potential losses or expenses rather than potential gains or revenues.
- Consistency Principle: Once an accounting method or principle has been adopted, it should be consistently applied from one period to the next, unless there is a valid reason for a change.
- Conservatism Principle: When faced with uncertainty, accountants should err on the side of caution and record potential losses or expenses rather than potential gains or revenues.
- Materiality Principle: Financial information should be disclosed if its omission or misstatement could influence the decisions of users of the financial statements.
- Objectivity Principle: Accounting transactions should be recorded based on objective evidence, supported by documentation and verifiable information.
It’s important to note that these principles can be supplemented by additional guidelines and regulations specific to each country’s accounting standards.
Principle of continuity
As in the creation of a company, Accounting also assumes the performance of activities with unlimited duration, that is, the company will exist forever, having no intention of liquidating itself in the future.
Principle of consistency
The company must not change its accounting policies, namely and by way of example, the company must choose the inventory system to be used in its activity and will not change it every year or year.
Principle of specialization
Income and costs must be recorded when earned or incurred, received or paid: accruals and deferrals.
Historical cost principle
The acquisition or production costs must be recorded in nominal currency units.
Principle of prudence
The company must be aware and concerned about possible returns and repairs of the products sold, and reflect this in its accounts.
Principle of the substance in the form
The company must register all movements, whether legal or not.
Principle of materiality
The financial statements must reflect exactly all the relevant elements, so that the assessments and decisions are as accurate as possible.
