PRINCIPLES OF ACCOUNT-
ING
Accounting is a process of recording , classifying , summaris-
ing, and analysing the financial transactions of a business or
any organisation in a systematic manner. There are 14 princi-
ples of accounting which help in making the accounting
process more qualitative. They are as follows :
A. BUSINESS ENTITY PRINCIPLE :
This principle stipulates that the business and its owners are regarded as
distinct and separate entities, even in the case of a sole partnership. This
distinction ensures that personal transactions of the owners are main-
tained separate from business transactions, thereby preventing the min-
gling of personal and business expenses.
B. MONEY MEASUREMENT PRINCIPLE :
The principle states that only transactions with monetary values are
recorded in the books of accounts. Examples of such transactions include
purchases, sales, salaries, rent, assets, liabilities, and so on. The sole lim-
itation of this principle is that it disregards non-monetary factors such as
brand value, employee morale, customer satisfaction, and work environ-
ment etc .
C. PRINCIPLE OF CONSISTENCY :
It stipulates that a business should consistently employ the same ac-
counting methods and policies across accounting periods to ensure com-
parability of financial statements over time. For instance, once an ac-
counting method such as the depreciation method or inventory valuation
method is selected, it should not be subject to frequent changes. This
practice guarantees the compatibility of financial data year after year.
D. ACCRUAL PRINCIPLE :
According to the accrual principle, income and expenses should be
recorded when they are earned or incurred, irrespective of when cash is
received or paid. Revenues are recorded when the company provides
goods or services, even if the customer has not yet paid. For instance, a
ING
Accounting is a process of recording , classifying , summaris-
ing, and analysing the financial transactions of a business or
any organisation in a systematic manner. There are 14 princi-
ples of accounting which help in making the accounting
process more qualitative. They are as follows :
A. BUSINESS ENTITY PRINCIPLE :
This principle stipulates that the business and its owners are regarded as
distinct and separate entities, even in the case of a sole partnership. This
distinction ensures that personal transactions of the owners are main-
tained separate from business transactions, thereby preventing the min-
gling of personal and business expenses.
B. MONEY MEASUREMENT PRINCIPLE :
The principle states that only transactions with monetary values are
recorded in the books of accounts. Examples of such transactions include
purchases, sales, salaries, rent, assets, liabilities, and so on. The sole lim-
itation of this principle is that it disregards non-monetary factors such as
brand value, employee morale, customer satisfaction, and work environ-
ment etc .
C. PRINCIPLE OF CONSISTENCY :
It stipulates that a business should consistently employ the same ac-
counting methods and policies across accounting periods to ensure com-
parability of financial statements over time. For instance, once an ac-
counting method such as the depreciation method or inventory valuation
method is selected, it should not be subject to frequent changes. This
practice guarantees the compatibility of financial data year after year.
D. ACCRUAL PRINCIPLE :
According to the accrual principle, income and expenses should be
recorded when they are earned or incurred, irrespective of when cash is
received or paid. Revenues are recorded when the company provides
goods or services, even if the customer has not yet paid. For instance, a
