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Accounting Principles - Meaning, Overview, List of Top 6 Accounting Principles - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of WallStreetmojo watch the video
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till the end also if you are new to this
channel then you can subscribe us by
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clicking the bell ican friends today we
are going to learn our tutorial a concept
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that is on accounting principles it will
be learning some of the list of the top
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accounting principles and what exactly
is involved in that the accounting
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principle will matter to you differently
if you want to invest in a company or if
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you if you own a company that's the
difference so if you decide to invest in
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a company you will look at accounting
alright for you if you want to invest
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you will look into accounting principle
right to see whether the company
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followed the principles but if you own a
company in in the second case if you own
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a company then you need to do a lot more
you need to report your financial data
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as for the accounting rules and guidance
so let's first understand what is
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accounting principles now what are the
accounting principles see as the name
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suggests the accounting principle as
basically the name suggests the account
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principles are basically a set of rules
and regulations
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you can say that are bin rules and
guidelines that have been by maintaining
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which a company should report in a
financial data so to understand this we
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can talk about the most popular set of
the accounting principles that is the
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generally accepted accounting principles
if you own a company then in in the
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United States you are a public listed
company so here's what you need to do to
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remain in the most important and major
Stock Exchange first you need to learn
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the gap the general accounting
principles right through true and
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thorough and then what the second thing
that you need to do is to edit you have
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to you to comply with the gap while
reporting your financial statements or
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alder just right comply with the gaap so
if you don't take the above steps then
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you won't be able to allow to be listed
on the major stock exchange in the US now
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let's go into a bit details and about what
are the accounting principles see what
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exactly is GAAP understanding gaap will
help you to either to the most common
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set of the accounting principles let's
understand this gaap briefly see gaap is a
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set of rules and guidelines you can say
GAAP is a set of rules and basically
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guidelines that the company need to
follow while reporting its financial
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statement GAAP is basically created to
ensure that the financial statement or
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financial reporting remains transparent
you can say and coherent throughout the
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process and it also ensures that the
financial reporting done in one
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organization remains consistent with the
financial reporting done in another
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company the fascinating thing about the
gaap is it is not similar to all the Java
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graphical location as for the region and
the industry gaap is implemented and
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followed upon so in the United States
the SEC ensures that the financial
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reporting is done by the company and is
followed as for the gaap the publicly
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traded companies in the United States
must comply with both the SEC and the
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gap right otherwise it wouldn't be
possible for them to remain publicly
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traded now what exactly is IFRS
you can see the gaap is not being
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followed in many countries that is a
u.s. gaap that we are talking about
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it is not following in many countries
that is why we also need to talk about
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the IFRS see in the u.s. gaap is
being followed in many countries other I
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mean that's that's in u.s. basically
other than the US okay in case of the
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financial reporting IFRS helps basically
public companies to prepare and report
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the financial statement in all over the
world since similar IFRS are set for the
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entire world it becomes easy to
implement and for the investors also the
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comparison between the company becomes
significantly easier so the auditor also
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basically over here I'll decide for you
or it the auditors also get a
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global standard to other to whenever
they verify the financial statement of
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the companies prepared by following the
IFRS is not like gaap the US
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GAAP IFRS doesn't change as for the
region rather IFRS has a general public
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guidelines or gender guidelines for the
preparing financial statement but
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average does not have any industry
specific financial reporting make sure
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that
let's understand a few of the list of
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the accounting principle
the first one is accrual principle this
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is really important the first is the
accrual principle see this is the one of
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the most common accounting principle it
says that you know the Commons the
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company should record the accounting
transaction in the same period that it
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happens not when the cash flows was
earned like for example let's say the
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company has sold products on credit so
as for the accrual principle these sales
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should be recorded during the period
when the amount or the money would be
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collected the second principle that is
the consistency or consistency is the
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next principle now this is the another
accounting principle which is commonly
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followed by all the organization as with
the principle if a company follows an
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accounting principle it should keep
following the same principle until there
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is a better accounting principle is
found out so if a consistency principle
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is not followed then the company would
jump around here and there and the
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financial reporting would not to be
messy
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so for investors also it would be
difficult to see where the company has
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been going and how the company's
approaching its long term financial
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growth the third is conservatism just
right for you that is a third conser-
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vatism now in this case as for the
conservatism principle accounting faces
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two alternatives the one reports a
figure that is the top-notch companies
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the bigger amount sorry not the company
the bigger amount or two reports are
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lesser them all right so to understand
this in detail let's take an example
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let's say that the company a has
reported it a machinery that is worth
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let's say close enough to $60,000 as it
costs so now as the market changes the
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selling value of the machinery let's say
it comes down to $50,000 so now the
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accounting has to choose one from the
two choices
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so first ignore the loss of the company
that may incur on selling the machinery
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before it is been actually sold in the
second to report the loss on the
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emotionally immediately so as for the
conservatism principle
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the accountant should go with the former
choice that is the report the losses
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that is the 10000 over here or on
on machinery even before the loss would
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have actually happened so the
conservatism principle greater it has a
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greater liability amount and lesser
asset amount and also a lesser amount of
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the net profit the fourth one is
basically the going concern principle
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now in this case as for the going
concern principle it it's it's accepted
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that a company would go on operating for
as long as it can be near or a
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foreseeable future by following the
going concerns when a company may defer
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its depreciation or similar expenses for
the next period of time the next is v
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that is the matching principle C
matching principle is the basis of the
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accrual principle we have seen before as
for the matching principle it's say that
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if a company recognizes and records it
revenue it should also record all the
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cost and expenses related to it so for
example if a company records its sales
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or revenue it should also record the
cost of the goods sold and also other
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operating expenses six is the full
disclosure that is the full disclosure
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now in this case as per the accounting
principle a company should disclose all
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the financial information to help the
readers see the companies transparently
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so without the full disclosure principle
the investor may miss read the financial
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statement because they may not have all
the information available with them to
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make a sound judgment
I hope you have got a clearer idea
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regarding all this accounting principles
that we have gone through accrual
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consistency conservatism going concern
matching concept and the full disclosure
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and it is really very important for all
the investors to look into any financial
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statement they need to see what exactly
they have followed so that's it for this
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particular topic if you have learned and
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