In this article, we will look at the basic accounting principles that must be followed to keep accurate financial records for a company. We will discuss principles such as the double entry principle, the principle of valuation of assets and liabilities, and the principle of maintaining continuity of accounting. You will learn how these principles help ensure that financial information is accurate and complete.
Accounting is an integral part of financial management in any company. Effective financial accounting requires strict adherence to certain principles that ensure the accuracy and reliability of financial information. In this article, we will look at the basic principles of accounting that help in keeping accurate financial records.
- The first and one of the most important principles of accounting is the principle of double entry. According to this principle, every accounting transaction should be recorded by at least two entries in the accounting system. One entry reflects an increase in assets and the other reflects an increase in liabilities or equity of the company. This principle tracks the flow of cash and other resources in the company and provides a balance between assets and liabilities.
- The second principle is the principle of valuation of assets and liabilities. According to this principle, the company’s assets and liabilities should be valued at fair market value or at cost, as the case may be. The valuation of assets and liabilities should be objective and based on reliable and valid data. This helps in presenting the financial position of the company in the most accurate manner.
- The third principle is the principle of maintaining continuity of accounting. According to this principle, accounting information should be presented continuously and consistently over time. This means that accounting records should be systematized and stored in such a way that they can be easily checked and restored if necessary. Continuity of accounting ensures the integrity of financial information and the ability to analyze its changes over a period of time.
Adherence to these accounting principles is essential to achieve accurate financial accounting in a company. They help in presenting reliable and complete information about the company’s financial position, performance and solvency. Accounting information based on compliance with these principles is a reliable basis for making management decisions and assessing the financial stability of the company.
In conclusion, it should be noted that accounting is an integral part of the successful functioning of the company. Compliance with basic accounting principles, such as the principle of double entry, the principle of valuation of assets and liabilities, and the principle of maintaining continuity of accounting helps to ensure the accuracy, reliability and completeness of financial information. This enables the company to make informed management decisions and build a financial strategy based on reliable data.
