I have a question, too. Could you please clarify the meaning of generally accepted principles?
Of course, Asgrimsson,
The generally accepted principles are the foundation of meaningful accounting. The principles include clarity, completeness, truth, materiality, prudence, continuity, and prohibition of offsetting.
Thanks for the reply. Could you tell me more about clarity?
Clarity simply means that all postings and items are clearly labelled and belong to correct categories. One can understand what the descriptions mean.
And what about completeness?
All assets, passives, expenses, and revenues are duly recorded on the balance sheet and income statement respectively. Notes to financial statement should include all required information. And figures for the previous year are reported for comparison.
I have a question, too, Mr Underwood. How would one describe truth in accounting?
Truth is the most important concept in my opinion. It means that there are no fictitious postings of assets or liabilities. Assets and liabilities are objectively calculated. And numbers are backed with sufficient evidence.
Yes, that's clear. Could you please explain materiality?
That is something that I'm familiar with. Materiality can qualitative and quantitative. Qualitative materiality is a combination of facts that can influence the valuation or presentation of financial statements. Quantitative materiality means that the amounts and their relationships can have an impact on the user of financial information.
Hi! A new question for you, Colleagues. Why do accountants have to be prudent?
It's simple, Mr Gomez. Prudence dictates that business risks are constantly underestimated. One should be conservative about a firm's assets and earnings, and always keep in mind that liabilities and expenses can be larger then expected.
Good afternoon, Colleagues! What is the meaning of continuity?
I have an answer. Continuity means that the financial statements have the same structure and accounting entries have the same contents the years that follow each other.
I heard that in Switzerland there are practically two accounting systems - one for small and medium enterprises, the other - for large corporations. Can I get more details about those? How does this arrangement work?