Accounting Principles Are general rules that govern the development of accounting methods and are derived from the objectives of financial statements, theoretical concepts and accounting assumptions. These principles are as follows: 1. Historical Cost Principle According to this principle, the value of the asset is the cost of acquisition or its historical cost from supporting documents. In other words, the asset is valued at the exchange rate at the date of acquisition and the asset is presented in the financial statements at its historical cost and at its amortization complex. Because the cost of historical origin does not represent its real cost. This principle is also based on the assumption that the enterprise will continue to operate indefinitely and therefore there is no justification for the use of current values or other values when valuing assets and is based on the principle of objectivity because historical data are objective and verifiable, The imposition of the unit of measure, which assumes the stability of the purchasing power of the monetary unit, is a key determinant of the application of the historical cost principle, although the application of this principle may lead to wrong figures of assets if their values change substantially over time. 2. Revenue Principle This principle relates to three important points: Nature and Components of Revenue Nature & Components of Revenue Revenue is defined as the net flow of assets arising from the sale of goods or the provision of services. It is also defined as the flow of goods and services from the establishment to its customers, and the production of the goods and services as a result of its efforts over a period of time. * Measurement of Revenue Measurement of Revenue Revenue is measured at the value of the product or service that is exchanged in the process of establishing the entity as one of its parties. This value is considered to be the net cash equivalent or the discounted present value that the entity receives or will receive in future for the goods and services provided. * Time of Revenue Recognition In general, revenue is earned and realized during each phase of the operations cycle. Given the difficulties associated with the distribution of income and income at different stages of the operations cycle, accountants rely on the principle of verification to select a critical event in the cycle for the timing of revenue recognition and income recognition. 3. Principle of Matching Principle This principle requires that expenditure be taken into account in the same period in which the income associated with such expenses is realized. These expenses are accounted for in two phases: * Capitalization costs in the form of assets. * Reduction of the value of each asset at a certain rate in return for services that were exhausted in order to achieve revenue. Objectivity Principle The benefit of the financial statements depends on the extent of confidence in the procedures used in the measurement and because of the difficulty of achieving absolute confidence, the accountants relied on the principle of objectivity to justify the choice of a measure or a certain procedure. However, the views of accountants differed in their definition of objectivity. * Is the measure that can be achieved and is based on accounting evidence. * The scale is objective if a group of observers agree on the measurement results. 5. Consistency Principle This principle requires that similar economic events should be recorded and reported on a consistent basis from one period to the next and assumes that the same accounting procedures and accounting techniques should be consistently used. The application of this principle makes the financial statements comparable to one year but does not impede the transition from Accounting method to another method where there is a justification for this. 6. Full Disclosure Principle There is a general agreement among accountants that there is a need for full and unbiased disclosure. It requires full disclosure that the financial statements are designed and prepared to accurately reflect the economic events that affected the entity during the period and that the information is clear and not misleading to investors. This principle also requires not to hide, Material or significant information to the investor and ambiguity in this principle opens a wide door for interpretation and raises many questions that remain unanswered. 7 - the principle of caution and caution Conservatism Principle This principle is exceptional in the sense that it acts as a limitation on the measurement and presentation of appropriate and reliable accounting data. This principle requires that if two accounting methods or more generally accepted accounting methods are chosen, the application of this principle means showing assets and income at the lowest values and showing liabilities and expenses For example, the historical cost principle is eliminated when valuing inventory using a lower cost or market basis, but this principle is less reliable at present. 8. Principle of material importance This principle is also exceptional where transactions and events with non-material economic effects are to be accounted for using simplified accounting methods and regardless of whether they are in accordance with generally accepted accounting principles and without the need to disclose them. The main role of this principle is that it assists in guiding and guiding the accountant When determining the type of data to be disclosed in financial reports. Key concepts of accounting * Enterprise: It is the economic unit that carries out a certain activity (commercial or industrial) through the exploitation of the resources available in an ideal manner in order to achieve the desired objectives. * Operating cycle: It is the average time an entity needs to buy, sell, and collect sales in cash. * Assets: They reflect the tangible and intangible property of the enterprise, namely: fixed assets, circulation, reputation and patents. * Liabilities: Which is the accumulated debt on the enterprise, and may be long-term, or short-term. * Property rights: Which are the remaining obligations of the entity to its investors. *. Statement of financial position: a financial statement showing assets, liabilities and equity * Revenues: Namely, an increase in the assets of the entity or a decrease in its liabilities through its operations. Expenses: It can be defined as the decrease in the assets of the current entity or the increase in its liabilities as a result of its operating activities. These include: rent, electricity, water, administrative and general expenses. * Net profit: It is the final profit that results from deducting costs from revenues. * Net loss: A loss resulting from the net shortfall in equity of investors and partners. Income statement: Defined as a financial statement, showing expenses, income, and net income over a specified period of time. Cash flow statement: This list represents cash flows to the entity and its cash flows, which are used by a number of persons, such as owners of the establishment or investors. * annual report: This is the report that the entity must provide to investors at the end of each financial period, including: the income statement and the statement of financial position. Book value: The total value of assets after deducting liabilities; this value is compared to the market value; the share price is determined for fair value. * Distributed profit: It is the profit that is distributed to the shareholders of the entity as a return on their investments and is distributed annually, or every half year, or every quarter. * Inventory: Includes all products left in the facility at the end of the fiscal year, whether they are final products, or products in the manufacturing stage, as well as raw materials.
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