Before learning accounting, you should understand the accounting principle. Briefly understand the principle so it will be easy to understanding accounting.

The principle inform us what we should obey the implementation or whether we should be avoid it. We cannot do as we want. We should obey the principle. Every country has different accounting principle. United states has FASB (Federal Accounting Standard Board) and every company should obey it.

A publicy stock traded company should use GAAP (Generally Accepted Accounting Principles) and SEC (Security Exchange Committee) require for it. GAAP include three important rules : 1. The basic accounting principles and guidelines, 2. the detailed rules and standard issued by FASB and its predecessor the Accounting Principles Board (APB), and 3. the generally accepted industry practices.

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Some accounting principles are:

1. Cost principle

Accounting just recognizes to the amount cash spent when an item was obtained. Accounting limit the term so people are not confused to record the journal. If we should adjust the amount of the cost at the end of year, we must correct our journal again.

On the other hand, accounting also recognize the asset value change.

2. Full disclose principle

A Financial statement should disclose any information either in financial statement or in footnotes. It is forbidden to hide any information about financial condition especially for cheating the investor. the information provided should be: (1) Detil information to users and (2) the information should be understable and cost benefit.

This accounting principle is important for financial statement analysis.

3. Going concern

The accounting could defer some prepaid expenses until certain periodic as long the company is able to fulfill the obligation.

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4. Double entry accounting

Record each transaction into two ledger (accounts) debit and credit because each transaction always include two sides business transaction. The entry will help to reconstructing business.

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5. The matching principle

The expense and the income should be matched. For example, the sales comission should be reported when the sales were made.

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6. Revenue recognize

Opposed with cas basis, the revenue recognition are recognized when the product has been sold or the service has been performed. 

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7. Conservatism

When there ia at least two alternatives for reporting, we must select the smallest value for net income. An accountant may write the amount of cost down; on the other hand, they are forbidden to raise the cost (mark up)

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8. Materiality

Accountinng may violate insignificant amount.Financial statement allow the amount are recorded to nearest hundreds, to the nearest thousand or the nearest million.

For example, a great multi national company which reported millions dollar profit buy a $ 50 calculator. The Calculatour could be used for, at most cases, five years.

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9. Historical cost

Only historical value from actual are recognized. The price of product and service always volatile because of inflation. Sometimes the small business confuse to record the amount of money because they postpone the recording. Do not bother yourself by recalculate the price of product and service.

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10. Accrual accounting

Unlike cash basis accounting, The accounting just record the amount of transaction when the product or service has been bought or has been sold. I think it is not different with cost principle.