Emphasis on Accounting Principle

1. Entity Concept: The financial activities of an entity should be kept separate from the personal financial activities of its owners or stakeholders. It emphasizes that the business is treated as a separate legal entity.?

2. Going Concern Concept: assumes that a business will continue to operate indefinitely, allowing for the preparation of FS on that basis. If there are any uncertainties about the business's ability to continue operating, disclosures are made in the FS.?

3. Consistency: Accounting methods and practices should remain consistent from one period to another to facilitate meaningful comparisons between financial statements over time. Any changes in accounting methods or practices should be disclosed.?

4. Accrual Basis: revenues are recognized when they are earned, and expenses are recognized when they are incurred, rather than when cash is received or paid. This ensures that FS reflect the economic substance of transactions.?

5. Materiality: only significant information that could impact the decision-making process of users should be included in FS. Immaterial items may be omitted.?

6. Prudence (Conservatism): encourages accountants to be cautious in their financial reporting. It suggests that when faced with uncertainty, accountants should err on the side of understating assets and income, while overstating liabilities and expenses. This helps prevent over-optimistic reporting.?

7. Full Disclosure: All material information that could affect users' decisions should be disclosed in the FS or accompanying notes. This includes information about accounting policies, contingencies, and related-party transactions.?

8. Matching Principle: Expenses should be matched with the revenues they help generate in the same accounting period. This principle ensures that FS accurately reflect the costs associated with generating revenue.?

9. Conservatism: When faced with uncertainty, accountants should choose the option that is less likely to overstate assets and income. This conservative approach is intended to provide a more realistic picture of a company's financial position.?

10. Cost Principle :Assets should initially be recorded at their historical cost (the amount paid or the fair market value at the time of acquisition). Subsequent adjustments may be necessary for changes in value, but this principle emphasizes the importance of reliability and objectivity.?

11. Revenue Recognition Principle: This principle outlines when revenue should be recognized. Generally, revenue is recognized when it's earned and realized, with reasonable certainty of collection. Various industries may have specific rules for recognizing revenue.