Question

In order to ensure that information is useful to investors and other external users, Generally Accepted Accounting Principles have been established.

To quickly summarize some of the accounting concepts and/or principles that apply to the accounting process, there are the following:

Business entity principle - states that a business is accounted for separately from other business entities, including its owner.

Going concern concept - states that the accounting information needs to reflect an assumption that the business will continue operating instead of being closed or sold.

Cost principle - accounting principle that requires financial statement information to be based on actual cost incurred in business transactions.

Objectivity principle - principle that prescribes independent, unbiased evidence to support financial statement information.

Matching concept - prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

Accrual accounting concept - accounting system that recognizes revenues when earned and expenses when incurred.

Consistency principle - principle encouraging use of the same accounting method(s) over time, so that financial statements are comparable across periods.

Full disclosure - states that financial statements and the related disclosures should include all necessary information to prevent a user of the financial statements from being misled.

Conservatism - Principle that prescribes the less optimistic estimate when two estimates are about equally likely.

do you feel that any of the accounting concepts/principles that were mentioned on the above thread, might have higher importance than the others?

Answer 1

No, I do not feel that. I think all of the above mentioned concepts are important. Accounting is based on these principles. No concept can be ignored. We can understand the importance of accounting principles in following manner-

1. With the help of accounting principles, companies record their transactions and they help companies to find the actual profit or loss for a particular accounting period.
2. These principles show the accurate financial position of the company. On the basis of past records, company can make strategies for future by comparing its profits from other companies.
3. Investors also get to know the financial position of companies, they can take investment decision based on companies' performance.
4. If companies keep the income and expenses record properly, they can save tax and can get many business deductions.

Thanks