Accounting Principle
Generally Accepted Accounting Principles (GAAP)
What are accounting principles?
The definition of accounting principles is simple, they are the set of legal regulations and general recommendations that must be respected to facilitate the analysis of the equity and financial situation of any entity, following commonly accepted criteria. Initially, these rules depend on each country.
However, to alleviate the difficulties of this differentiation by country, the acceptance of what are known as GAAP has been extended as an instrument to unify this criterion. So, we are talking about 14 accounting principles that are used as a guide for measuring the equity and economic elements of an entity. We see them one by one. There are other scales created by institutions or academic bodies, but those approved in 1965 at the conference of specialists in Mar de Plata are the most widespread.
What are the accounting principles?
As we have indicated, these are 14 principles that are divided according to their usefulness into 4 types:
Fundamental Principle or Basic Postulate
The maxim by which accounting should be governed is fairness.
Equity: Every financial statement must reflect equity between opposing interests, in reference to the proportionality and impartiality of the accounting information to ensure a fair analysis between the parties, that there are no benefited or disadvantaged.
Fund or Valuation Principles
In the field of valuation of funds and cost we find different principles:
Valuation at cost: the basic valuation criterion will be the acquisition or production value, not the market value.
Accrued: registration in accounts of events and accounting transactions on a certain date.
Realization: the economic results are only computed when they are realized
Principles that make the qualities of information
Among these principles we can observe:
Objectivity: any change in equity must be reflected in the accounting records.
Caution: if there are two values to choose from, the lower one is chosen.
Materiality: It will always act in a practical sense in accounting tenets.
Uniformity: the chosen principles must remain unchanged if the circumstances in which they were approved do not change.
Exposure: formulate the financial statements in a way that is understandable to users.
Principles given by the socio-economic environment
Entity: The assets of the company become independent of the person, the owner is considered a third party. The entity has its own life and is subject to rights and obligations.
Economic goods: set of material and immaterial goods that can be valued in monetary terms.
Currency of account: reduce all assets and equity to a common expression that allows them to be measured, the currency of account. It usually coincides with the legal tender money of the entity's country.
Going concern: every economic organization is valid in the present and projection or continuity in the future
Exercise: the progress of a company is divided into uniform periods of time.
I hope that this basic summary of the classification of the Generally Accepted Accounting Principles (GAAP) has been enlightening for you.
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