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Basic Principles

Basic Principles in Management Accounting

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Basic Principles

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  1. BASIC PRINCIPLES

  2. States that all the business transactions that will be entered in the accounting records must be duly supported by verifiable evidence. OBJECTIVITY PRINCIPLE

  3. This means that all the properties and services acquired by the business must be recorded at its original acquisition cost. HISTORICAL COST

  4. States that income should be recognized at the time it is earned such as goods are delivered or when services have been rendered. Likewise, expenses should be recognized at the time they are incurred such as when goods and services are actually used and not at the time when the entity pays for those goods and services. ACCRUAL PRINCIPLE

  5. States that all material facts that will significantly affect the financial statements must be indicated. ADEQUATE DISCLOSURE

  6. Means that financial reporting is only concerned with information significant enough to affect decisions. This refers to the relative importance of an item or event. An item is considered significant if knowledge of it would influence prudent users of the financial statements. MATERIALITY

  7. Means that approaches used in reporting must be uniformly employed from period to period to allow comparison of results between time periods. Any changes must be clearly explained. CONSISTENCY

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