Nature and Meaning of Accounting Principles
Many scholar’s differ in opinion in the subject of
nature and meaning of accounting principles. Some people say that the word principle indicates to fundamental belief or General truth; while others say that the word principle
means rule of action or conduct. The first tendency does not seem proper in practical point of view because in accounting principles flexibility is found in excess. Time to
time accounting principles are given different forms for beneficial tasks so its principles are changeable. Thus to believe in its fundamental belief would not be fair. The rule of
action conduct is practical and this word can be used easily.
The American Institute of Certified Public Accountants (AICPA) defines the word principle in this way: “A general law or rule which is adopted for the guidance of work and which is the base of behaviour and conduct.”
Paton and Littleton have used the word ‘Standard’
instead of the word principle. The word standard is more practical in comparison to principle because accounting principles are manmade. Their formation and development is
affected by various business institutions and government, and Accounting principles can not be proved by observation and experiment just like other sciences.
Essential Features of Accounting
Any rule should have included these three facts to
be called Accounting principles
(2) Objectivity, and
These accounting principles should be such which may increase the usefulness of the accounting records, so that important and reliable informations may be collected
and which may be useful in attaining the expected objectives and targets.
Dife The accounting principles should be objective in nature; It means they should be based on some real facts.
There should be total absence of personal thinking and partiality. The Accounting principles should be such which can be easily and practically adopted and used. If any rule is so complicated or difficult that inspite of being approve kare to accounting, it can not be practised, then this type of rule can not be accepted as principle of accounting.
Generally these three types of qualities are found in accounting principles but sometimes such rules are also adopted as accounting principles which do not fulfill the above given facts or which are just opposite to any of the facts. For instance when we accept the rules of showing the fixed assets on basic cost in balance sheet then we know it very well that due to changes on price level, now it is useless to show property on basic cost in balance sheet but it is difficult to know the market price of property and to know the correct price index. Comparatively it is more practical to make accounts of properties or basic cost because though beingmore useful market price does not have the qualities of objectivity and practicability.
Accounting principles or rules of function and conduct are known by these names also –
(G) Postulates, etc.