Principles and Practices of Accounting

The Accounting Principles

The accounting practices are formed on the basic principles that are designed to lead and mentor accountants while they work on their accounting reports and financial statements. In his book, Wright points out the main accounting principles. He writes that “Generally accepted accounting principles provide standards for the evaluation of the financial position of an enterprise and for the measurement of income and expense over a given period of time” (Wright 386). In accordance with the main information described in the first unit of the texbook, there exist 10 accounting principles. Each of the ten principles is equally important in carring out accounting practices. Those are: accruals, consistency, matching, going concern and the full disclosure principles. These principles ensure that the accounting information represented in the accounting statements is of the highest integrity and is accurate and reliable.

The Going Concern Principle

The first principle is the going concern, which assumes that the company will continue operating without any probability of winding up as far as the future is foreseeable. As such, the company is expected to undertake in activities that will lead to the achievement of its goals and objectives as usual. As such, the company is allowed to carry forward any prepaid expenses. However, in the event that the company will not be able to continue with operations, the accounting is expected to report this in its accounting information.

The Accruals Principle

The second principle is accruals principles. In her work, Ireland has pointed out that the accruals principle posits that ”income and expenditure is recorded in the period in which it is earned or incurred, regardless of the timing of the associated cash flows” (25). This means that for instance, if a customer took goods on credit from the company in the financial year ending 31st December 2017, the profit from the product will be recorded for the year 2017 even if the customer pays in the following financial period.

The Matching Principle

Another principle is matching principle. According to Ireland, the matching principle outlines that ”costs (expenses) are recognised in the P&L in the same period as the income they help to generate” (49). This means that the purchases that a company makes in in a given year have to be recorded within the same year as the revenues that come from the purchases. An example would be when purchasing stock. All the stock that is purchased and sold within, say, the financial year ending 31st December 2017 are matched to the revenues that they raise within the year.

The Consistency Principle

The next accounting principle is consistency. This principle holds that since there are several accounting techniques that lead to the same findings, an accountant can to use any of the techniques, provides that he or she maintains the same method throughout his or her reporting. This ensures that the reporting statements. As a result it is easier to carry out comparison among various trading periods.

The Full Disclosure Principle

The full disclosure principle is equally important in the presence of the other accounting principles. Usually, the accounting information is prepared for the purpose of communication with other external stakeholders, such as lenders and investors. As such, in order to ensure that these stakeholders make informed decisions about the true financial health of a company, the accountant is expected to provide full information as far as the trading period in question is concerned. This is closely linked to the concept of business ethics, in which honesty and integrity has to be maintained in the course of business financial statements reporting. All the principles above are vital in equal measure and have to be observed for uniformity within the accounting profession. Further, all the financial statements have to conform to these accounting principles and for ease of comparison of financial information across global companies.

Works Cited

Ireland, Jennifer. ”Principles of accounting.“ London: University of London 280 (2005).

Wright, Howard W. ”Generally Accepted Accounting Principles and Practices in Relation to Defense Contracts.“ The Accounting Review 28.3 (1953): 385-391.