2. Bases of Accounting
One of the prerequisites of a profession is that it have an established body of knowledge and basic and guiding tenets. This is true of accounting. It has a vast number of such tenets, referred to by such terms as concepts, principles, conventions, and standarts. Unfortunately, the distinctions or similarities are not always clear.
Concepts. Concepts are general ideas that help to standardize a function. Concepts are basic to the developments of accounting theory, since they are necessary assumptions or conditions upon which accounting principles are based. They may be reffered to also as axioms or postulates. The validity of concepts is concepts is considered to be self-evident, or assumed, even though they may not be provable. Thus, with certain facts or conditions taken for granted, the groundwork is laid for further development of accounting theory within preestablished limits. Concepts provide a basis on which to develop principles.
Principles. Principles are propositions that are deemed to be controllingin a particular situation. Principles are propositions that are deemed to be controlling in a particular situation. To be effective, they must have the approval and acceptance of the Professional group (accountants). A principle is assumed to be the best choice of alternative courses leading to desired ends. If a principle is accepted without prof, it takes on the characteristics of a concept.
Accounting principles are laws or rules controlling the handling of economic data. The laws are man-made and thus may be changed when a generally recognized need arises. For example, the principle of retirement accounting for fixed assets has given way to depreciation accounting for them, and the principle of pricing inventory on a first-in, first-out basis has lost ground to the principle of pricing inventories on a last-in, first-out basis.
Conventions. Conventions are general guides to procedure based on custom or agreement. A convention is a rulet hat, by common consent of the group involved (accountants), may be used to reach an acceptable solution to a given situation or problem. Alternate conventions may exist side by side. For example, there are a number of equally logical and equally valid ways of taking depreciation.
Standards. Standards are measures, models, or goals. A Standard may be established by custom or consent, by scientific or Professional groups, or by law, usually after research and experimentation. Standards may be changed from time to time as warranted by changes in conditions or in the body of knowledge.
