Introduction to Accounting Principles
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Definition
- Accounting principles are the standardized rules and guidelines that govern how financial transactions are recorded and reported.
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Why Standardization Matters
- Ensures financial statements are comparable across companies and time periods, and trustworthy to external users.
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Major Standard-Setting Bodies
- IFRS (International Financial Reporting Standards) - used in most of the world, including Kenya.
- GAAP (Generally Accepted Accounting Principles) - primarily used in the US.
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Core Principles Overview
- Going concern, accrual basis, consistency, prudence, materiality, and the matching principle all underpin how transactions are recorded.
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Relevance for Preparers and Users
- Preparers apply these principles when recording transactions; users (investors, lenders) rely on them to interpret statements correctly.