What are the basic accounting principles?
Basic accounting principles are general decision-making rules that help in accounting techniques development. Through accounting principles, you can learn how to record and report transactions.
Basic Accounting Principles are
Revenue Recognition Principle
Through this principle, revenue is recognized in an enterprise‘s income statement. What are they considered as revenue? Those are
It excludes certain taxes and a commission from the agency relationship.
Historical Cost Principle
During the acquisition the amount paid for the assets. Those transactions are recorded in the accounting records. The cost paid during the acquisition periods will become the basis of accounts.
If the cost is not paid for the asset, that will not record as an asset. For example, the most favorable location is not recorded through these valuable assets. Cost concept usage lies in the fact that it is verified objectively.
Based on this principle, recognized revenue in the accounting period must match expenses in that period. For example, if income is recognized on goods sold during a period, the expenses of those products ought to be charged to that period.
It isn’t right to recognize revenue on all sales, expenses are charged on sales in the accounting period. For this principle accrual concept is used and it ignores the cash inflow, and cash outflow and concentrates on accrued revenue and expenses.
The matching principle does not mean that revenue should recognize with expenses.
Revenue and expenses may or may not be identical in the accounting period. For example Sales, related terms are Cost of goods sold and commission to salesmen whereas some of the sale revenue is charged to the accounting period to which they relate.
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