Accounting Principles 1, 2, and 3
Accounting Principles 1, 2, and 3

See Also:
Accounting Principles 5, 6, and 7
Continuous Accounting: The New Age of Accounting

Accounting Principles 1, 2, and 3

Basic accounting principles are generally held and regulated under Generally Accepted Accounting Principles (GAAP). The Financial Accounting Standards Board (FASB) also provides rulings and general practices with regard to these accounting principles. Some of these principles of accounting also contain underlying concepts or methods that may be used as it pertains to that company’s particular industry or business venture. Accounting Principles 1, 2, and 3 include the following:

  • Reliability Principle
  • Comparability Principle
  • Cost Principle

Reliability Principle

Also known as the Objectivity Principle, this basic accounting principle requires that all companies provide accounting information that is without significant error or bias. The reliability principle is generally required for publicly traded corporations under the Securities Exchange Act of 1934.

Comparability Principle

The comparability principle is based off the idea that information is much more useful if the firm establishes a certain standard or benchmark and it’s general competition. There are generally two guidelines that firms should follow when using the comparability principle:
1) The first of these is the requirement that accounting information remain comparable from business to business. This is generally performed when companies register with different exchanges. Different exchanges generally have accounting concepts and principles like an accounting concept such as the Stable-Monetary Unit or basic accounting principles such as GAAP or IFRS so information is easily read and readily comparable to other companies in the market.
2) The second part is the requirement that any single businesses’ statements or reports be comparable from one period to the next. Generally speaking when a company adopts a certain method or a principle of accounting, it must remain with that accounting basic from quarter to quarter and year to year.

Cost Principle

The Cost Principle generally states to record assets and services at their purchase or historical cost. This is one accounting concept principle that allows for more conservative valuations under the concept of conservatism. This also provides more meaningful statements. There is not a requirement for accountants to mark all assets to the market.
To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.
Reliability Principle, Cost Principle, accounting principles 1, 2, and 3

[box]Strategic CFO Lab Member Extra
Access your Flash Report Execution Plan in SCFO Lab.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]

accounting principles 1, 2, and 3, Cost Principle, Reliability Principle

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »

CPA’s are Specialized

The Difference in CPAs Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

February 27 - March 2, 2023

Skip to content