= accounting principles

The basic theoretical ideas devised to support the activity of accounting. As accounting developed largely from a practical base, it has been argued that it lacks a theoretical framework. Accountants have therefore tried to develop such a framework; although various concepts have been suggested, few have found universal agreement. However, four are deemed to be fundamental: the first, the going-concern concept, assumes that the business is a going concern until there is evidence to the contrary, so that assets are not stated at their break-up value; the second, the accruals concept, involves recording income and expenses as they accrue, as distinct from when they are received or paid; the third, the consistency concept, demands that accounts be prepared on a basis that clearly allows comparability from one period to another; and the fourth, the prudence concept, calls for accounts to be prepared on a conservative basis, not taking credit for profits or income before they are realized but making provision for losses when they are foreseen. These four principles are recognized in the European Union Fourth Directive and the Companies Acts together with a fifth, the separate-entity concept. Other accounting concepts might include depreciation and deferred taxation, which are concepts relating to accounting, but which are not usually considered when reference is made to fundamental accounting concepts.