With reference to the basic principles of accounting, explain any two principles.

(i) Matching Principle — According to this principle, the cost of a particular period should be charged against the revenue of the same period only. Only such matching of cost and revenue can reveal the true profit or loss for the period. The principle is based on the accrual system of accounting. All expenses relating to the accounting period — whether paid or not — must be charged against the revenue of that period (e.g., outstanding expenses are debited to the Profit and Loss A/c). Similarly, prepaid expenses, closing stock, accrued income and income received in advance are adjusted so that only those costs and revenues which belong to the current period are matched.

(ii) Principle of Full (Complete) Disclosure — According to this principle, accounts should be prepared in such a way that all the material information required by users of financial statements is clearly disclosed. Information that occurs after the preparation of the Balance Sheet should also be fully disclosed. Disclosures may be made by way of footnotes or annexures to the financial statements. For example, change in the method of depreciation, change in method of stock valuation, market value of investments and contingent liabilities are shown in footnotes.