As an Accountant, explain the accounting principles you followed while preparing accounting records. Accounting principles are the general rules which govern the accounting techniques.
1. Duality Principle:
According to this concept, each and every business transaction has two aspects- a giving aspect and a receiving aspect. The giving aspect of a transaction is called ‘credit’ and the receiving aspect of a transaction is called ‘debt’. Based on the duality principle, accounting equation is developed, ie; Asset = Liabilities + Capital.
2. Historical Cost Principle:
This principle requires that all transactions should be recorded at their acquisition cost. This principle is called historical, because the balance of assets and liabilities is carried forward from year to year to its acquisition cost, irrespective of increase or decrease in the market value of assets.
3. Matching Principle:
Under this concept, all the expenses, as well as the revenues of a particular period, should be accounted or otherwise it should be matched. In other words, it is the process of matching the revenue recognised during the period and the costs should be allocated to the period to obtain the revenue.
4. Full disclosure Principle:
This principle states that all information significant to the users of financial statements should be disclosed. It requires that all facts necessary to make financial statements not misleading must be disclosed.
5. Revenue Recognition Principle:
Revenue is the amount that a business earns through sale of goods or services. This principle helps in ascertaining the amount of revenue and the point of time at which it was realized. This principle is also called revenue realisation principle.
6. Verifiability and Objectivity Principle:
This principle states that the accounting data provided in the books of accounts should be verifiable and dependable. The figures exhibited in the financial statements should have supportive evidence such as bills, vouchers, etc. The evidence substantiating the business transaction should be objective, i.e., free from the bias of the accountants or others.
