In order to ensure uniformity and consistency in accounting records, some rules or principles have been established and are widely recognised by the accounting profession. These rules or principles are described below. These rules are referred to by a variety of titles, including principles, ideas, norms, postulates, assumptions, and principles that alter other principles.
The American Institute of Certified Public Accountants (AICPA) defines the word "principle" as "a general law or norm chosen or proclaimed as a guide to behaviour, an established foundation or basis of conduct or practise." The phrase "in a general fashion" refers to the way in which something is applied to a large number of people, situations, or events. As a result, generally accepted accounting principles (GAAP) refer to the standards or guidelines that have been established for the recording and reporting of business transactions in order to ensure consistency in the production and presentation of financial statements in the United States.
For example, one of the most essential rules is to record all transactions on the basis of historical cost, which can be verified via the use of supporting documentation such as a cash receipt for the money spent. This improves the impartiality of the recording process and increases the acceptability of the accounting statements among a wider range of consumers.
In the course of time, past experiences, usages, and customs, statements by individuals and professional bodies, and regulations by government agencies have all contributed to the development of the Generally Accepted Accounting Principles, which are generally accepted by the majority of accounting professionals. The concepts of accounting, on the other hand, are not static in nature. Changing legal, social, and economic environments, as well as the demands of the public, have a continuous impact on these systems.
These principles are referred to as ideas and norms in other contexts. Accounting concepts are defined as essential assumptions and notions that are basic to accounting practise, while accounting conventions are defined as norms or traditions that are used to govern the production of financial statements. In practise, the same rules or guidelines have been presented as a concept by one author and as a set of rules or guidelines by another.
Theory Base of Accounting 25 is referred to as a postulate by one source and as a convention by another. At times, this may be perplexing for the students to comprehend. We should not get bogged down in the semantics of these words; instead, we should focus on their applicability in real life situations. From the standpoint of practicability, it is noted that the different words such as principles, postulates, and hypotheses are all ambiguous.
Conventions, modifying principles, assumptions, and other similar terms have been used interchangeably and are together referred to as Basic Accounting Concepts in the current day and age.