Principles Of Accounting

 

What is the full disclosure principle?

 For a business, the full disclosure principle requires a company to provide the necessary information so that people who are accustomed to reading financial information can make informed decisions concerning the company.
The required disclosures can be found in a number of places including the following:
- the company’s financial statements including any supplementary schedules and notes (or footnotes).
- Management’s Discussion and Analysis that is included in a publicly-traded corporation’s annual report to the U.S. Securities and Exchange Commission.
- Quarterly earnings reports, press releases and other communications.
The first note or footnote in a company’s financial statements will disclose the significant accounting policies such as how and when revenues are recognized, how property is depreciated, how inventory and income taxes are accounted for, and more.
Other disclosures in the notes to the financial statements include the effects of foreign currencies, contingent liabilities, leases, related-party transactions, stock options, and much more.
Judgement is used in deciding the amount of information that is disclosed. For example, in 1980 large U.S. corporations were required to report as supplementary information the effects of inflation and changing prices on its inventory and property (and cost of goods sold and depreciation expense). After several years, the disclosure became optional since the cost of providing the information exceeded the benefits.

What are the accounting principles, assumptions, and concepts?

The basic or fundamental principles in accounting are the cost principle, full disclosure principle, matching principle, revenue recognition principle, economic entity assumption, monetary unit assumption, time period assumption, going concern assumption, materiality, and conservatism. The last two are sometimes referred to as constraints. Rather than distinguishing between a principle or an assumption, I prefer to simply say that these ten items are the basic principles or the underlying guidelines of accounting. (My reason is that accounting principles also include the statements of financial accounting standards and the interpretations issued by the Financial Accounting Standards Board and its predecessors, as well as industry practices.)
There are also “qualities” of accounting information such as reliability, relevance, consistency, comparability, and cost/benefit. These are discussed in the Statement of Financial Accounting Concepts No. 2, which can be found on the Financial Accounting Standards Board’s website www.FASB.org/st.

What is principles of accounting?

Three meanings come to mind when you ask about principles of accounting…
1. Principles of Accounting was often the title of the introductory course in accounting. It was also common for the textbook used in the course to be entitled Principles of Accounting.
2. Principles of accounting can also refer to the basic or fundamental accounting principles: cost, matching, full disclosure, materiality, going concern, economic entity, and so on. In this context, principles of accounting refers to the broad underlying concepts which guide accountants when preparing financial statements.
3. Principles of accounting can also mean generally accepted accounting principles (GAAP). When used in this context, principles of accounting will include both the underlying basic accounting principles and the official accounting pronouncements issued by the Financial Accounting Standards Board (FASB) and its predecessor organizations. The official pronouncements are detailed rules or standards for specific topics.