What is accounting principles & regulatory laws!

Overview of Financial Statement underlying accounting principles and regulatory laws & regulation.


What is accounting principles?

Three meanings come about principles of accounting:


1. Principles of Accounting was often the title of the introductory course in accounting.


2. Principles of accounting can also refer to the basic or fundamental accounting principles: cost principles, matching principles, full disclosure principles, materiality principles, going concern principles, economic entity principles, and so on.


3. Principles of accounting can also mean generally accepted accounting principles (GAAP).


The following are accounting principles:


1.  Business is a separate entity:

The accountant keeps all of the business transactions separate from the business owner’s personal transactions.


2.  Monetary Unit Assumption.

Economic activity is measured in Taka and only transactions that can be expressed in Taka are recorded.

Because of this basic accounting principle, it is assumed that the Taka’s purchasing power has not changed over time.


3. Accrual basis of accounting.

Items are recognized as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria whether cash transaction occurred or not.


4. Historical cost Principle.

From an accounting point of view, the term “cost” refers to the amount spent (cash or the cash equivalent) when an item was originally obtained, whether that purchase happened last year or thirty years ago. For this reason, the amounts shown on financial statements are referred to as historical cost amounts.


5. Full Disclosure Principle.

If certain information is important to an investor or lender using the financial statements, that information should be disclosed within the statement or in the notes to the statement.


6. Going Concern Principle.

This accounting principle assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.


7. Matching Principle.

This accounting principle requires companies to use the accrual basis of accounting. The matching principle requires that expenses be matched with revenues. For example, sales commission’s expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid.


8. Revenue Recognition Principle.

Under the accrual basis of accounting (as opposed to the cash basis of accounting), revenues are recognized as soon as a product has been sold or a service has been performed, regardless of when the money is actually received.


9. Materiality.

The basic accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgment is needed to decide whether an amount is insignificant or immaterial.


10. Conservatism.

If a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount.


11. Consistency of presentation.

To maintain consistency, the presentation and classification of items in the financial statements should stay the same from one period to the next.


Regulatory law & regulation

—Bank company Act

—Company Act

—Bangladesh Securities & Exchange Commission Rules & regulations

—Bangladesh Bank guidelines, circular & instruction

—Stock Exchanges rules & regulations

—The Negotiable Instruments Act

—Foreign Exchange Regulations Act

—Accounting standards


What is accounting principles. 

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