The functioning of every matter is based on some principles. Without principles not only the functioning becomes haphazard but also the sequence and fashion of assembly don’t remain unidirectional. In particular matters such as accounting and finance, there are some very important principles which have to be followed critically otherwise wrong or unexpected results are destined to be achieved. All the principles discussed below imply in all conditions where there is interference of accounting. These principles benefit the company or organization and ensure the proper monetary direction.
- Cost Principle: According to this principle, the company is bound to enlist everything and provide financial statements by mentioning the cost prices. In other words, whatever the company or an individual owns has to be presented in the form of cash value on the financial statement. This value will not change concerning inflation or any other condition. The cost principle is also called the historical cost principle.
- Principle of Conservatism: Accountants are notorious for being conservative. Surprisingly, they have a proper principle allocated for this behavior. According to this principle, the organization should be ready for any upcoming loss. For this purpose, the organization must enlist a minimum possible profit and maximum possible investment. This principle applies in the condition when there is a confusion or doubt over the inflow or outflow of cash. This keeps the company ready for any unpleasant results.
- Going Concern: This principle is concerned with the dissolution of a company. In easy terms, the death of the company. A company doesn’t stop working all of a sudden. Even to stop working it has to follow the rule of going concern. Due to this principle, the company can continue working on credit.
- Monetary Unit: This is a basic principle which involves the noting down of values of goods.
