11 Generally Accepted Accounting Principles (Full Discussion)
11 Generally Accepted Accounting Principles (Full Discussion) – Accounting is a means of calculating which is a source of information in making decisions of a company. In order for accounting information to be useful to managers or business owners, the information must be prepared in a form that complies with financial accounting standards.
11 Generally Accepted Accounting Principles (Full Discussion)
Therefore it requires knowledge of the basic principles that underlie all finance in accounting.
Definition of Accounting Principles
Accounting principle is a method, or procedure, as well as procedures for recording financial transactions. Which in this accounting principle is expected to be able to produce a financial report that is relevant and easy to understand by anyone. Before we discuss further about accounting principles, it would be nice for us to know in advance about what is called accounting.
Definition of Accounting
In general, the notion of accounting is an act of recording, classifying, and processing transactions related to finance. From this it is hoped that it can present information or data that can be used as a basis for consideration by interested parties to make a decision.
To be able to produce financial reports that are accurate and generally acceptable, reports should be prepared in accordance with the accounting process and based on accounting principles.
11 Generally Accepted Accounting Principles
There are also the basic principles of accounting, of which we will describe eleven principles used to record transactions. The eleven basic principles include:
1. Historical Cost Principle or Historical Cost Principle
The historical cost principle requires the use of acquisition prices to record assets, debts, costs and capital. For example, when we are going to buy a gadget, we will be offered a price of Rp. 5,000,000. After bargaining, the price of this gadget will fall to Rp. 4,900,000. Under these conditions, our record that appears is the figure of IDR 4,900,000.
2. Revenue Recognition Principle or Revenue Recognition Principle
It is a very important issue for companies to know when revenue has been recognized. Revenue can be said to be realized if a product has been exchanged for cash and recognized at the time of sale. The basis used in measuring the amount of income is the amount of cash equivalent received from sales transactions. The selling price is an objective measurement of the amount of revenue recognized.
3. Matching Principle or the principle of bringing together
The purpose of the Matching Principle is to bring together the costs and results of the income that arises because of the costs that have been incurred. This principle is used in determining the amount of net income from each period. In general, this principle is used when making adjusting entries. With this principle, it requires us to calculate how much costs have been incurred and how much income will be obtained.
4. Consistency Principle or Consistency Principle
So that we can compare financial reports from year to year, the methods and procedures that we use in the accounting process need to be applied consistently from year to year. So if later there are differences, then we can immediately find out that these differences are not differences resulting from the use of different methods. It does not mean that consistency is interpreted as a prohibition to change methods, but there is still the possibility to make changes to the methods that have been used.
5. Full Disclosure Principle or Full Disclosure Principle
The Principle of Full Disclosure is the principle that presents a complete information in the nature of a financial report. This principle is very much needed because only through financial reports can we know the condition of a company and to make a decision from that company. If the information presented is incomplete, this could mislead the user.
6. Principles of Business Continuity (Going Concern Principle)
The principle of business continuity is a principle that assumes that a business entity will operate continuously and continuously. Because indeed there is no company that wants its business to stop in the middle of the road, unless a certain event occurs such as a natural disaster.
7. Materiality Principle
The materiality principle is one of the principles that recognizes the existence of material or valuable measurement and accounting records. Valuable, which means nominal value and can be sold. If it is immaterial, then it does not need to be assessed and acknowledged.
8. The Principle of Monetary Units (Unit Monetary Principle)
The principle of monetary units is a principle that records financial transactions and must be expressed in currency without involving non-quantitative factors. Examples of these non-quantitative factors are achievement, business strategy, quality, performance, and others. These factors are not included in monetary units because they cannot be assessed or reported in terms of money.
So that this monetary principle emphasizes limited recording of everything that can be measured and valued in units of money
9. Principles of Accounting Period (Period Principle)
The principle of the accounting period or what is known as the principle of the period of time. The meaning of this time period principle is the assessment and financial reporting of business entities that are limited by a certain period of time. This principle aims to produce measurable financial information.
10. Principles of Economic Entity (Economic Entity Principle)
The principle of economic entities, also known as the principle of entity unity. This principle recognizes the concept of business unity of a company. This means that a company is a business or economic entity that stands alone and is separate from private owners or other economic entities. The meaning of being independent and separate is in terms of the assets or wealth of a company. So accounting demands for a separation of assets in the company with the personal wealth of the owner of the company. All records of all financial transactions that occur must not be mixed with the records of companies that record the private owners
11. APB (Accounting Principle Board) Version Generally Applicable Accounting Principles
The accounting principles in this version consist of a conceptual basis such as the conceptual framework of the FASB and PABU versions referred to in the operational and practice basis which consists of fundamental principles, general operating principles, and principles detailed.
Thus our review this time about 11 Generally Accepted Accounting Principles (Full Discussion), I hope this helps friends in finding information and references. Thank you 🙂
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