According to The American Institute of Certified Public Accountants “Principles of Accounting are the overall law or rule adopted or proposed as a guide to action, a settled ground or basis of conduct or practice”
Importance of Accounting Principles
The basic objective of accounting is to speak information about the financial well-being of an enterprise to the users of the financial statements. As the accounting principles and assumptions followed across various enterprises are different thanks to biases and differences of opinion between the accountants.
This gives rise to the necessity for a group of universally accepted guidelines and rules which help in making financial results of varied enterprises comparable across industries and time periods. In today’s dynamic environment the requirements and expectations of companies from accounting keep it up changing, hence the accounting principles need to be developed and altered consistent with the requirements of the business.
Characteristics of Accounting Principles
Flexible in Nature: As we all know businesses operate during a dynamic environment and so as to stay up with the ever-changing needs of the business world and economy, the principles of accounting must be flexible in nature.
Man-made: These principles have been developed by accountants and academicians over a long period of time through the continuous application while adapting to the ever-changing needs of the companies.
Generally Accepted: These principles are universally accepted, free from personal bias. In order to be universal in character three basic criteria should be fulfilled which are as follows :
- Objectivity and
Basic Accounting Terms
After going through this lesson, you will be ready to understand the ‘Basic Accounting Terms’ that we commonly use in Accountancy.