Top 10 most popular accounting principles
As a CFO, understanding the principles of accounting is crucial to effectively manage the financial operations of your organization. In this blog post, we will provide an overview of the top ten most popular accounting principles that every CFO should be familiar with.
1) Business Entity Principle: This principle requires that transactions of the business and the personal transactions of the owner(s) are separate and distinct.
2) Cost Principle: This principle states that assets should be recorded at their original cost, rather than their current market value.
3) Matching Principle: This principle requires that expenses be recorded in the same period as the revenue they helped generate.
4) Full Disclosure Principle: This principle states that all information that is relevant to making informed decisions should be included in the financial statements.
5) Materiality Principle: This principle requires that financial information be disclosed if it is likely to affect the decision of investors or creditors.
6) Going Concern Principle: This principle requires that financial statements be prepared to assume that the business will continue to operate in the foreseeable future.
7) Revenue Recognition Principle: This principle requires that revenue be recorded when it is earned, rather than when the payment is received.
8) Consistency Principle: This principle requires that accounting methods be consistent from one period to the next, to enable comparative analysis.
9) Conservatism Principle: This principle states that when there are two estimates available, the one that is more conservative and understates the asset values should be used.
10) Time Period Principle: This principle requires that financial statements are created regularly, usually annually, to allow management to monitor financial performance over time.
Understanding these ten accounting principles will help CFOs make better financial decisions and ultimately lead to a more efficient and effective organization. By keeping abreast of these principles, CFOs can be confident in their abilities to manage financial affairs responsibly and transparently, and in turn, build trust with their investors and other stakeholders.