Explain the Feature importance
and limitations of accounting
principal in a point
Answers
Answer:
Meaning of Accounting Principles:
Accounting principles are men made. Unlike the principles of Physics, Chemistry and other natural sciences; accounting principles were not deduced from basic axioms, nor their validity is verifiable through observations or experiments. These principles are drawn from practical practice of accounting.
No list of universally accepted principles can be prepared but still certain principles are drawn which are accepted by most of the accountants. According to Terminology Committee of AICPA. “The word principles are used to mean a general law or rule adopted or preferred as a guide to action; a settled ground or basis of conduct or practice.” A.W. Johnson describes accounting principles as “Broadly speaking, these principles are the assumptions and rules of accounting, the methods and procedures of accounting and the application of these rules, methods and procedures to the actual practice of accounting.”
Essential Features of Accounting Principles:
Accounting principles are acceptable if they satisfy the following norms:
1. Relevance or Usefulness:
A principle will be relevant only if it satisfies the needs of those who use it. The accounting principle should be able to provide useful information to its users otherwise it will not serve the purpose.
2. Objectivity:
A principle will be said to be objective if it is based on facts and figures. There should not be a scope for personal bias. If a principle can be influenced by the personal bias and whims of users, it will not be an objective principle and its usefulness will be limited. The cost principle will be more useful than the value principle because value will be based on market prices and personal judgment will differ in finding out value.
3. Feasibility:
The accounting principles should be practicable. The principles should be easy to use otherwise their utility will be limited. While showing fixed assets in the balance sheet, it will be more feasible to take cost less depreciation. If the assets are shown on market value or replacement cost basis then it will involve difficulties and different persons will take different values because market prices go on changing every time.
Explanation:
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