What are the accounting principles and assumptions

It is a set of assumptions and principles that are considered the reference that organizes and governs the course of the accounting cycle starting from recording accounting entries to final accounts and financial statements until sound and reliable information is produced for the accounting period and assisting management in taking appropriate decisions. These principles and assumptions are:

First: the assumptions

 Economic unit

Assuming that the facility has a legal or corporate personality separate from that of its owners, i.e. it is considered a legal person or entity separate from its owner, as well as its records, meaning it has what it has and what it owes.

Impose continuity

This assumption is based on the fact that the economic unit continues for more than one accounting period, and accordingly, fixed assets are evaluated at historical cost, i.e. in the past or at the time of their purchase, a distinction between current assets and current liabilities and a depreciation allowance for fixed assets to face the gradual decrease in the useful life of fixed assets.

Accounting period

The business of the establishment is divided into several periodic periods of time, which is usually a year, and the result of the establishment’s business activity is calculated each year, including profit or loss, and not waiting for the establishment to be liquidated.

 monetary unit

That is, the assumption that money is the basis of transactions in the economic unit and translates all its actions into cash, such as the dollar, for example, where it is used in the measurement and accounting analysis operations and because it is the basis.

Second, principles

Historical cost

This principle is based on recording financial operations at the actual cost of them at the time of their purchase or acquisition, such as when buying a car with an amount of 10,000 riyals, which is recorded with this amount and the market value of the car is not considered

the interview

That is, the revenues of the accounting period are matched with its expenses to arrive at the result of the enterprise’s activity in terms of profit or loss. If the revenues are greater then there is a profit and if the expenses are greater then there is a loss.

Accrual basis

The accrual basis is based on charging the accounting period with its revenues and expenses, regardless of payment or collection, and the goal of this principle is to know the outcome of the period’s activity, regardless of cash flows.

Persistence

The principle of consistency is based on the firm's commitment when it uses accounting methods not to change it from one period to the next to justified circumstances and events.

Check revenue

This principle is based on the non-recognition of revenues in the event of their occurrence or occurrence, such as the establishment providing a service or performing the final sale, whether in term or in cash, and the goal of this principle is accuracy and objectivity in recording revenues and reaching the correct result of the activity.

The principle of prudence and caution

It is an important principle in financial accounting, and it is so called that the establishment takes precautions and takes caution to face any risk, losses, and challenges that it may face in the future, i.e. not taking the expected profits into account except when they are achieved and taking the expected losses into account before they happen. By making provisions and reserves.

Disclosure

This principle aims to disclose the accounting principles in a clear and transparent manner and not to withhold any information for the beneficiaries until the appropriate decisions related to the facility or the users of the accounting information are taken, whether the administration or external parties.