Question

What is the importance of an accounting policy & its relevance to users of general purpose financial statements?

Answer 1

Importance of accounting policy:

Accounting policies is an important thing to be followed by every type of business organisation irrespective of their size or complexity. Accounting policies are rules and guidelines that are needed to be followed by the company while preparing financial statements. Although different policies are used by different organisations.

It is made sure through following accounting policies that the transactions are evaluated and measured in a systematic manner.

Relevance of accounting policies to users of general purpose financial statements:

• When accounting policies are disclosed in the general purpose financial statements , it helps the users to make a clear comparison with the other organiosations.
• It helps the investors in taking their investing decisions about the entity that whether investing in the company is safe or not or how much to invest etc.
• Gives useful information to the users of general purpose of financial statements.