ACCOUNTING PRINCIPLES

Accounting Principles

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Accounting Principles

Synopsis

The confusion between accounting principles, standards, formats, methods among businesses is going on from the 19th century. This is because large business might follow a different method against a small business but even though the standards, the formats are the same, as the principles might differ. So is the confusion between a service organization and a not non service organization, between a profit oriented organization and service oriented organization. That's why the best methods are selected of accounting for different types of businesses for effective and accurate information as output.

What is accounting

Despite the fact that many practitioners describe accounting as an art and not a science, there seems to be a little consensus on an accurate definition of the term. Many dictionaries do not provide a direct definition but define the term 'accountant' as one liable to render account, or a professional keeper and inspector of accounts. Using the lattes as a starting point, it is probably easier to describe accounting as a process rather than proving a precise definition. Hence "accounting can be described as the process of recording, classifying and summarizing the financial transactions of a business organization and reporting, interpreting and communicating this information to interested parties such as the owners(s) of the business, creditors, and investors." The accounting process also involves the forecasting of financial data, for example, the preparation of sales budgets (Lindsay Yates, 1989, p.1).

Accounting Standards

For any process or experiment certain ways and rules are been prescribed through which the process is put into action and output is generated. Same ways in the accounting process certain principles, accounting standards, formats; laws are established to make accounting statements understandable and useful by everyone. For this, accounting standards were first issued in Australia in the late 1960s and early 1970s. In the 1970s, through to 1983, thirteen accounting standard were developed and issued by the two professional accounting bodies: the Institute of Chartered Accountants (ICA) and the Australian Society of Certified Practicing Accountants (ASCPA). The standards issued by the accounting profession are referred to as the ASS series of standards and are biding only on members of the accounting profession (Martin, 1994).

The Generally Accepting Accounting Principles (GAAP) was made by the accountants and the businesses to enable the users of financial statements to understand them.

The bodies which help them into practice are Financial Accounting Standards Board (FASB) and the Government Accounting Standards Board (GASB).

Function of Financial Statements

The financial statements - (the profit and loss statement and the balance sheet) is made to summarize company financial information. The profit and loss statement reports the profit (or surplus) that has been made during a given period and how it was obtained. The balance sheet is prepared at the end of a period to show the assets of the entity, its debts, and the owner's claims on the entity. It gives an indication of the financial position at a specific date. In addition, it sums up the company's net income ...