THE FUNDAMENTAL ACCOUNTING PRINCIPLES

THE FUNDAMENTAL ACCOUNTING PRINCIPLES

In the choice and application of the appropriate accounting principles or policies, some fundamental concepts contradict one another. It is exercise of judgment needed but some practical principles have been evolved for use in particular circumstances some of these principles are:

a. Substance over form: Although business transactions are usually governed by legal principles, then are nevertheless accounted for and presented in accordance with their substance and financial reality and not merely with legal form.

b. Objectivity: This principle connotes independence of judgment on the part of the accountant preparing the financial statements. Objectivity requires support by veritable evidence, in contrast to subjectivity or dependence on the inevitable opinion of the accountants preparing the financial statement.

c. Fairness: This is an extension of the objectivity principles in view of that fact that there are many users of accounting information, all having different needs, of the fairness principles requires that accounting reports should be prepared not to favour any group or segment of society.

d. Materiality: This principle holds that items of materials values are accorded their strict accounting treatment.

e. Prudence: This principles demands exercising great care in the recognition of profit whilst all known losses are adequately provided for. This is however, not a justification for the creation of secret of hidden reserves.

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