Accounting Principles

Public Accountants have defined "Accounting is the art of recording, classifying and summarising in significant manner and in terms of money transactions and events which are, in part, at least of a financial character and interpreting the results thereof.” Affairs of a business unit are communicated to outsiders, owners, lenders and managers through accounting information, which has to be suitably recorded, classified, summarised and presented. In order to convey a uniform meaning to all people as far as possible and to make it meaningful, it is necessary that it should be based on certain uniform scientifically laid down standards. These standards are termed as accounting principles. These accounting principles/guidelines are to establish standards for sound accounting practices and procedures in reporting the financial status and periodic performance of a business.  These principles are classified in two categories:

• Accounting concepts; and
• Accounting convention.

The best way to understand the underlying principles, concepts and conventions is to acquire genuine insight into the general body of accounting theory comprising the generally accepted accounting principles/standards whether they are as per law or on the strength of standard guidelines issued by authoritative accounting bodies like the ICWAI, ICAI etc. or on the basis of local custom. The origin of double entry during 15th century can be taken as the starting point for a study of the development of the accounting theory. The basic accounting principles developed during the 19th century and early 20th century. According to Prof Hendriksen "The main influence on accounting theory during the period 1800 to 1930 can be classified as follows:

• The textbook presentation of bookkeeping and the development of newer methods of teaching accounting;
• The Industrial revolution with its influence on cost accounting and accounting for depreciation;
• Government regulations of business;
• The taxation of business;
• The development of the corporation and growth of industrial and financial giants through managers; and
• The influence of economic theory.