6 Accounting Principles Every ACCA Should Know

It is very important for any future professional in ACCA to have an idea of what the fundamental principles of accounting are. These are those that constitute the foundation of financial reporting; that is, they stand for consistency and transparency, as well as for the accuracy of actual accounting representation. In other words, if a professional prepares financial statements or takes vital decisions in a business, knowing what the basic principles of accounting are is an evident requirement. In this article, the student will look at six fundamental accounting principles a student sitting for the ACCA examination should know because they are very important both for the examinations and practical application.

What Are the 6 Accounting Principles Every ACCA Should Know?

1. What Is the Going Concern Principle?

Going concern is one of the most critical accounting concepts. It considers an entity to continue to operate into the foreseeable future unless it is otherwise known. It is a very important principle because this will affect the valuation of assets and liabilities. If it is not a going concern, the valuation of some assets needs to be taken at liquidation prices, not at their historical cost. Understanding this principle helps ACCA professionals evaluate the financial health of a company and whether it is well-placed to continue into the longer term.

2. What Is the Consistency Principle?

The consistency principle means that once an accounting method is adopted, it should be continued from period to period. This enhances the comparability of the financial statements over time. Any change in accounting policies should be disclosed along with the reason for the adjustment. For example, if an entity changes the depreciation method used, then such change shall be disclosed in the financial statements. ACCA students must remember that the understanding of the consistency principle is crucial for the appropriate preparation of the financial reports and maintenance of accounting standards.

3. What Is the Double-Entry Principle?

The double-entry principle is the basic building block of modern accounting. In every transaction, it simply means that two equal and opposite effects on the accounting equation occur, namely: Assets = Liabilities + Equity. For example, if a company buys equipment for cash, it increases one type of asset—equipment—but decreases another asset type—cash. This is the principle whereby the accounting equation remains balanced and forms the basis for the preparation of accurate financial statements. ACCA students are required to master double-entry book-keeping skills, as it forms the very foundation of the entire accounting process.

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4. What Is the Business Entity Concept?

The business entity concept separates the financial affairs of a business from those of its owners. This implies that the financial transactions of the business must be recorded separately from the personal transactions of the owner(s). For example, if an owner of a company withdraws money for personal use, it should not appear in the company’s financial statements. This is a very important distinction to be made by students of ACCA, because it ensures that financial reporting represents the financial position of the business and not the owners’ personal finances.

5. What Is the Historical Cost Principle?

The historical cost principle demands that the acquisition of assets should be recorded and reported at cost, not at their current market value. This is one of the most common reporting principles because it is objective and verifiable. For example, if a company acquires land for $100,000, it will carry the land at that value, even if the market value appreciates over time. This is one of those principles that assist in the consistency and reliability of the financial reports. Students of ACCA should appreciate the extent to which this principle may have to be adjusted in some other situations, for instance, impairment reviews or when the market values substantially vary from the historical cost.

6. What Is the Accrual Accounting Principle?

The accrual accounting principle states that revenue and expenses should be recorded when they are earned or incurred, not when cash is received or paid. This principle ensures that financial statements accurately reflect a company’s financial performance during a specific period. For example, if a company provides a service in December but doesn’t receive payment until January, the revenue should be recorded in December, when the service was provided. This is one of the basic principles that a student of ACCA should know so that he presents the view of the financial position at any period of time that the actual financial statements reflect.

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Conclusion

Any person undertaking the ACCA certification must at least understand the fundamentals of what is called the accounting standard. The above six—going concern, consistency, double entry, business entity concept, historical cost, and accrual accounting—retrospectively provide a basis upon which to ensure that accounting practices conform to the standard, that is, truthful and objective presentation of their financial statements. These are among the principles that would help him through the exam and subsequently when he goes into practicum in real accounting problems.

FAQs on Accounting Principles of ACCA

What are the 6 basic accounting principles?

The basic accounting principles are six in number:

1. Going Concern Principle
2. Consistency Principle
3. Double-Entry Principle
4. Business Entity Concept
5. Historical Cost Principle
6. Accrual Accounting Principle

What are the ACCA fundamental principles?

The ACCA has identified some fundamental guiding principles on conduct for the accountant: integrity, objectivity, professional competence, confidentiality, and professional behaviour.

What are the 5 codes of ethics?

The five codes of ethics in accounting are:

1. Integrity
2. Objectivity
3. Professional Competence
4. Confidentiality
5. Professional Behaviour

What is integrity in accounting?

Integrity in accounting entails veracity in all financial reporting and decision-making. An accountant shall ensure that their actions are truthful and void of bias or misrepresentation.

What are the 5 accounting ethics?

The five accounting ethics are:

1. Integrity
2. Objectivity
3. Professional Competence
4. Confidentiality
5. Professional Behaviour

Partham Barot is an ACCA-certified professional. showcasing his expertise in finance and accountancy. he’s revolutionising education by focusing on practical, real-world skills. Partham’s achievements underscore his commitment to elevating educational standards and empowering the next generation of professionals.