What are Accounting Principles?
Definition: Accounting principles are the building blocks for GAAP. All of the concepts and standards in GAAP can be traced back to the underlying accounting principles. Some accounting principles come from long-used accounting practices where as others come from ruling making bodies like the FASB.
It’s important to have a basic understanding of these main accounting principles as you learn accounting. This isn’t just memorizing some accounting information for a test and then forgetting it two days later. These principles show up all over the place in the study of accounting. Trust me. After you know the basic accounting principles, most accounting topics will make more sense. You will be able to reference these principles and reason your way through revenue, expense, and any other combination of problems later on in the study course.
Here are the main accounting principles, concepts, assumptions, and constraints. I wrote a short description for each as well as an explanation on how they relate to financial accounting.
- Business Entity Concept
- Going Concern Concept
- Monetary Unit Assumption
- Periodicity Assumption
- Historical Cost Principle
- Revenue Recognition Principle
- Matching Principle
- Full Disclosure Principle
- Cost Benefit Principle
- Materiality Concept
- Industry Practices Constraint
- Conservatism Principle
- Objectivity Principle
- Consistency Principle