![]() Internally it is important for accurate financials to be available for executive leadership to compare units within the university. As an example at IU, it is important for the external financial statements to be accurate and consistent as they are audited by the State Board of Accountancy who have a major impact on state appropriation, executive decision making, external ratings for funding, etc. They also ensure consistency from entity to entity which is essential when comparing numerous financials within a given industry. Standardized accounting principles ensure consistency for multiple fiscal periods to more accurately analyze comparative financial data. These principles are needed in order to standardize and regulate various accounting methods and assumptions. Why are Accounting Principles Important and Needed?Īccounting Principles are important to ensure that financial information is acceptable, accurate, and understandable to both internal and external users. ![]() Because Indiana University receives funding from the local, state and federal level, IU follows both US GAAP and the generally accepted accounting principles issued by GASB. Indiana University must follow guidelines from two separate governing organizations – US Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards Board (GASB). ![]() There are many frameworks of accounting principles used for various types of business entities around the world. Introduction to Accounting Principles What are Accounting Principles?Īccounting principles are general rules and guidelines that entities must follow in order to accurately report their financial statements. Additionally, examples will be provided to help illustrate how the principles are used within the university. Information presented below will walk through the five main accounting principles which acts as the pillar for financial recording and reporting at IU. This standard discusses fundamental concepts as it relates to recordkeeping for accounting and how transactions are recorded internally within Indiana University. Accounting Fundamentals – Normal Balances Section.Accounting Fundamentals – Accounting Terminology Section.While if company predicts to lose a case, then company A should record the amount which they have to pay if they lose a case.Prior to reading the standard Accounting Principles, it is beneficial to review the below sections to gain foundational information: If company A predicts that they will win a case and gain a large amount of settlement, then company A will not record this uncertain gain in financial statements until it becomes certain. So in such times loses should be recognized immediately upon discovery, and revenues only when verified.Ĭompany A files a sue against company B for a patent. The conservatism principle says that company accounts should be prepared with caution and some moderation, especially in times of uncertainty. According to the conservatism principle businesses should record any future uncertain loses but not record future gains until they become certain.Ĭonservatism principle is concerned about the reliability of financial statements of an entity and benefits for the user, especially in the areas of overstating the revenue and assets and understating the loses and expenses. Conservatism principle is one of the main accounting principles which records future possible loses but not future gains or revenues.
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