Accounting Basis and Policies

Accounting policies are the specific accounting bases judge by business enterprises to be most appropriate to their circumstances and adopted by them for the purpose of preparing their financial accounts.

Accounting basis are the various methods which have been developed for applying fundamental accounting concepts to financial transactions and to items in financial statements. Accounting bases are used for constructing accounting figures which are variable. These are methods developed for determining the;

Accounting periods in which revenues and costs should be recognised in the profit and loss account.

 Amount at which material items should be stated in the balance sheet.


Example of Accounting Basis

Let’s suppose that a business unit is required to provide for depreciation of its fixed asset and stock valuation at the end of the each accounting period.

So, that, the following the accrual or matching concept;

Stock items can be set out against the sales proceeds of those items in future accounting period.


Example

Stock on actual value $15,000                     Revalue at $ 17,780 on sales price

Assets can be shown at their carrying values in the Balance Sheet.


Example

Asset on cost value $80,000                          on Carrying value after Depreciation of 10%

                                                                               $80,000X10/100=$8,000     $72,000