ICSE Class 9 Answered

Need for Accounting Principles

Accounting information communicates the outcome of business transaction in the form of final accounts. Reliable and comparable accounting information helps the internal user and external user to make appropriate decisions. Consistency is necessary throughout the process of identifying the economic events, measuring them and recording in the books of accounts, summarizing the results and reporting to the interested users. This is possible only through the formulation of theory base of accounting.

The theory base of accounting consists of principles, concepts, rules and guidelines formulated over a period of time to maintain consistency. For example, a rule is to record all transactions on the basis of historical cost which is verifiable with the document such as cash receipt for the amount paid to the shopkeeper.