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Period:
Usually a year. It is the period between two balance sheet statements of
financial position.
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Accrual:
Income and expenses are recognized when they accrue and not when the cash is
received or spent. If no cash is involved immediately, the income will find
a correspondence with accounts receivable and the expense with accounts
payable.
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Realization
or recognition: The question is when the management decides that the
revenue or the expense has accrued. At the time of delivery, at the time of
contract, or at the time of receiving advances? Also, what proportion of a
long-term project can be considered completed?
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Matching:
Once the income is realized, usually the associated expenses can also be
booked. This is called matching the expenses with the income.
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Historical
Cost: Expenses are generally recorded at the historical cost. This means
that all the assets are at old historical costs and the accountant will not
revalue each and every machine each year. This simplifies the accountants’
work, but creates problems for the analyst who wants to know how much the
enterprise is worth.
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Conservatism:
Slower to recognize incomes and quicker to realize expenses or losses.
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Money
measurement: Items which cannot be measured in money are not included.
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Entity:
The statement has to indicate the entity (or group of entities) to which it
pertains.
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Going
concern: It is assumed that the firm will carry on in business and not
be liquidated. As a result, the liquidation value of assets is not taken.
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Consistency
: Accounting policies do not change from one period to the next.
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Materiality:
The amount of disclosure, and the valuation methods used, are related to the
materiality of the item.
