Accounting is the language of business and it is used to communicate financial information. In order for that information which makesense, accounting is based onthe fundamental concepts. These fundamental concepts then form the basis for all of the Generally Accepted Accounting Principles. By using these accountingconcepts as the foundation, readers of financial statements and other accounting information do not need to make assumptions about what the numbers

Guidelines on Basic Accounting Principles and Concepts

GAAP, is the framework and guidelines of the accounting profession. Its purpose is to standardise  the accounting concepts, principles and procedures.

Here are the basic accounting principles and concepts:

Business Entity

A business is considered a separate entity from the owner(s) its totally separate and should be treated separately. Any personal transactions made by its owner should not be recorded in the business accounting book unless the owner’s personal transaction involves adding and/or withdrawing resources from the business.

Consistency principle

This is the concept that, once you adopt an accounting principle or method, you should continue to use it until a demonstrably better principle or method comes along. Not following the consistency principle means that a business could continually jump between different accounting treatments of its transactions that makes its long-term financial results extremely difficult to

Economic entity principle

This is the concept that the transactions of a business should be kept separate from those of its owners and other businesses. This prevents intermingling of assets and liabilities among multiple entities, which can cause considerable difficulties when the financial statements of a fledgling business are first audited.

Monetary Unit

This principle assumes that transactions should be recorded in a single currency and exchange rate. This will help the company compare its accounts to the previous years, in spite of a change in the rate of inflation. This principle actually supports the preparation of business reports in a uniform manner.

Going concern concept

In accounting, a business is expected to continue for a fairly long time and carry out its commitments and obligations. This assumes that the business will not be forced to stop functioning and liquidate its assets at “fire-sale” prices.

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