Accounting Principles PDF

Accounting Principles Basic: 1. Accrual 2. Revenue Recognition 3. Matching 4. Historical Cost 5. Full Disclosure 6. Materiality  1. Accrual Principle Financial transactions are recorded when they occur, not when cash is exchanged. Revenue is recognized when earned, and expenses when...

Accounting Principles Basic: 1. Accrual 2. Revenue Recognition 3. Matching 4. Historical Cost 5. Full Disclosure 6. Materiality  1. Accrual Principle Financial transactions are recorded when they occur, not when cash is exchanged. Revenue is recognized when earned, and expenses when incurred, regardless of cash flow.  2. Revenue Recognition Principle Revenue is recognized when it is earned, not when payment is received. This ensures revenue is recorded in the correct period. Example: If a company delivers goods in December but receives payment in January, the revenue is recorded in December.  3. Matching Principle Expenses should be recorded in the same period as the revenues they help generate. Ensures a proper match between income and related costs. Example: If a business sells goods in December, the cost of those goods should also be recorded in December.  4. Historical Cost Principle Assets are recorded at their original cost, not market value. Provides a reliable and verifiable record for transactions. Example: If a company buys a building for RM500,000, it will record the building at that cost, even if the market value changes over time.  5. Full Disclosure Principle All relevant financial information must be disclosed. Includes any additional details that impact financial data. Example: If a company is involved in a lawsuit, it should disclose this information in the notes to the financial statements, even if it has not yet affected the financial figures.  6. Materiality Principle Information is material if its omission could influence decisions. Only significant items are disclosed. Example: A small expense that would not impact the overall financial decision-making of users may be ignored, while large expenses must be reported.  Accounting Assumptions Basic: 1. Separate Business Entity 2. Monetary Unit 3. Time Period/Periodic 4. Going Concern 1. Separate Business Entity The business is treated as a separate entity from its owners or other businesses. This means the financial transactions of the business are recorded separately from personal or other organizational transactions.  2. Monetary Unit Financial transactions are recorded in a stable currency. This assumption assumes that the value of money remains stable over time, ignoring the effects of inflation or deflation. Does not permit the recording of transactions or events which are not measurable in monetary unit.  3. Time Period Financial reports are prepared for specific periods to allow timely reporting and analysis of financial performance. Example: monthly, quarterly, annually  4. Going Concern The business is expected to continue operating in the foreseeable future unless there is evidence to suggest otherwise. This assumption allows the deferral of recognizing certain expenses and revenues until future periods.  Accounting Standards Basic: 1. International Financial Reporting Standards (IFRS) 2. Generally Accepted Accounting Principles (GAAP) 3. Malaysian Financial Reporting Standards (MFRS) 1. International Financial Reporting Standards Issued by the IASB IFRS promotes global harmonization of financial reporting, making it easier for investors to compare financial statements across borders. Widely used in over 140 countries, including Malaysia, as the basis for financial reporting. Principle-based standard  2. Generally Accepted Accounting Principles In the United States, accounting standards are based on GAAP, which is developed by the Financial Accounting Standards Board (FASB). There is an ongoing effort to converge U.S. GAAP with IFRS to create a unified global accounting framework. Rule-based standard  3. Malaysian Financial Reporting Standards Based on IFRS, these standards govern the preparation of financial statements in Malaysia. The Malaysian Accounting Standards Board (MASB) plays a key role in issuing these standards.  Ethical Standards Basic: 1. Code of Ethics  1. Code of Ethics Accounting bodies play a crucial role in upholding ethical practices within the profession. These include: Code of Ethics: A set of principles guiding professional behavior, ensuring that accountants act with integrity, objectivity, and professionalism. Importance of Ethics: Given the financial crises and corporate scandals, ethical behavior in accounting is critical in promoting transparency and restoring public trust in financial information.  Accounting Bodies Global: 1. International Federation of Accountants (IFAC) 2. International Accounting Standards Board (IASB)  1. International Federation of Accountants (IFAC) Key Roles: Promotes international convergence of accounting standards. Supports professional accountancy organizations worldwide. Focuses on sustainability reporting and ethical practices.  1. International Accounting Standard Board (IASB) Key Roles: Establishes global accounting standards for financial reporting. Aims to ensure transparency and comparability in financial statements across borders. Significance: IFRS is widely accepted for financial reporting in global capital markets.  Accounting Bodies Regional & National: 1. Malaysian Institute of Accountants (MIA) 2. Association of Chartered Certified Accountants (ACCA) 3. Institute of Chartered Accountants in England & Wales (ICAEW)  1. Malaysian Institute of Accountants (MIA) Overview: The statutory body that regulates the accounting profession in Malaysia. Key Roles: Ensures compliance with local laws and regulations for accountants. Develops ethical and professional standards for accountants in Malaysia. Membership: All accountants practicing in Malaysia must be registered with the MIA.  2. Association of Chartered Certified Accountants (ACCA) Overview: A global professional body for accountants with over 233,000 members in 179 countries. Key Roles: Provides certification through the ACCA qualification, a globally recognized accounting qualification. Emphasizes both financial and management accounting expertise. Promotes international career mobility by allowing ACCA-qualified professionals to work globally. 3. Institute of Chartered Accountants in England & Wales (ICAEW) Overview: One of the oldest accounting bodies, established in 1880, with members worldwide. Key Roles: Offers the ACA (Associate Chartered Accountant) qualification. Supports members with continuous development through seminars, conferences, and specialized courses. Focuses on financial reporting, audit, assurance, and advisory services.