Discuss in brief the basic principles of accounting.

The basic principles of accounting (GAAP) are as follows:

1. Business Entity Concept — Business is treated as a unit separate and distinct from its owner. Capital provided by the owner is treated as a liability of the firm.

2. Going Concern Concept — It is assumed that the business will continue to exist for an indefinite period in the future. Hence fixed assets are recorded at cost less depreciation rather than at market value.

3. Money Measurement Concept — Only those transactions which can be expressed in terms of money are recorded. Money is a common denominator that makes records homogeneous and comparable.

4. Accounting Period Concept — Financial statements are prepared at regular intervals (usually one year), called the accounting period.

5. Matching Principle — Cost of a particular period is matched against the revenue of the same period to ascertain the true profit or loss.

6. Dual Aspect Principle — Every transaction has two equal and opposite effects (debit and credit). This gives rise to the Double Entry System and the equation: Assets = Liabilities + Capital.

7. Complete (Full) Disclosure Principle — All material information required by users must be clearly disclosed in the financial statements (or by footnotes/annexures).

8. Revenue Principle — Revenue should be treated as realised whenever the ownership of goods changes, whether or not cash is received.

9. Expense Principle — Every cost incurred to earn revenue is an expense and must be recognised when incurred, irrespective of whether cash is paid.

10. Realisation Principle — Revenue is deemed realised when goods are transferred or services are rendered to a customer, not when cash is received.