In producing valid and accurate financial reports, accountants must carry out an accounting process that is well structured, according to procedures and meets generally accepted accounting principles. The purpose of using these accounting principles is to create a match between one accounting user and another. So the financial information generated can be compared and meet the needs of users of that information.
Accounting principles are the basis or reference in carrying out the accounting process. The use of this principle raises an objective assessment of accounting products so it does not cause differences or problems. In addition, financial statements as accounting products must be read and understood by all parties. Therefore there is a need for uniformity in accounting procedures. Different countries also differ the principle of accounting.
It was adjusted to the needs and other factors that exist in each country. In Indonesia, accounting principles are regulated by IAI or the Indonesian Accounting Association, the body that regulates accounting rules and policies that apply in Indonesia. The accounting principles that you need to know are as follows.
Principles of Economic Entities
The Principle of Economic Entity or the principle of entity entity is defined as the concept of business unity. In other words, accounting assumes that the company is an economic unit that stands alone and separate from other economic entities even with private owners. In this way, accounting separates and distinguishes all transaction records, both the assets and liabilities of the company from the private owner of the company.
Principles of Accounting Period
The principle of an accounting period or time period principle is the valuation and financial reporting of a company that is limited by a certain time period. For example, a company runs its business based on the accounting period, starting on January 1 until December 31.
Historical Cost Principle
This principle requires that every goods or service obtained is then recorded based on all costs incurred in obtaining it. So if there is a bargaining process, for example when a company wants to buy a building that has 150 million in prices, but after negotiating only 100 million, the price or agreement is 100 million.
Monetary Unit Principles
In this principle, the recording of transactions is only stated in the form of currency and does not involve non-qualitative matters. All records are limited to everything that can be measured and valued in units of money. Non-qualitative transactions (quality, achievement, etc.) cannot be reported or cannot be valued in monetary terms.
Principles of Business Continuity
This principle assumes that an economic or business entity will run continuously or continuously without any dissolution or termination unless there is a certain event that can refute it.
Principles of Full Disclosure
Financial statements must have the principle of full disclosure in presenting informative and fully announced information. And if there is information that cannot be presented in the financial statements then given additional information. This additional information can be in the form of footnotes or attachments.
Principles of Recognition of Revenues
Revenues arise from the increase in assets generated by business activities such as sales, revenue sharing and others. Revenues are recognized when there is certainty about the amount or nominal, both large and small, which can be measured accurately with the assets obtained from the sale of goods or services.
The principle of meeting together
The purpose of the principle of matching (matching) in accounting is the cost of reconciled with the income received with the aim of determining the size of the net profit each period. For example in income transactions received in advance. This principle is very dependent on the determination of income, if the recognition of income is delayed then the imposition of costs also can not be done.
Principle of Consistency
The principle of Consistency is defined as the accounting principle used in fixed financial reporting and is used consistently (does not change methods and procedures). The goal is that the resulting financial statements can be compared with the financial statements in the previous period so that they can provide more benefits for users.
Principle of Materiality
Accounting principles have the aim of uniforming all rules. But the fact is that not all accounting applications adhere to existing theories, it is not uncommon for material or immaterial information to be disclosed.