We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are Accounting Principles?

By Dale Marshall
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Accounting principles are generally accepted standards and rules that are used in the preparation of financial journals, ledgers and statements. Their use permits business owners, investors and other stakeholders to come to a clear and consistent understanding of an enterprise’s financial status based on reading its audited financial statements. Having generally accepted accounting principles is very much like having accepted rules for language, such as definitions for words and standards for grammar. Without generally accepted standards in language, meaning is lost; without generally accepted accounting principles, statements presented to illustrate an enterprise’s financial condition will be interpreted in various ways, leading to confusion and misunderstanding.

Certain accounting principles, such as double-entry bookkeeping and the segregation of company funds from those of its owner, are generally accepted worldwide, while others are more specific to different regions or nations. Others are a matter of choice, and when an enterprise’s statement is prepared, that choice must be noted on the statement. For example, in determining the value of an inventory of purchased goods, a company might use the inventory’s current market value, or it might use the actual amount it paid for the inventory. Another choice a company must make is whether to use the cash or accrual basis for its accounting. The cash basis, favored by individuals and small companies, involves recording expenses and revenue as they occur; larger organizations almost universally use the accrual basis, recording these items as they’re incurred.

The different choices available to accountants, and the complexity of adhering to generally accepted accounting principles (GAAP), actually make it important to codify them so they can be easily consulted. In the United States, the government doesn’t mandate accounting standards, leaving that task to the free market. GAAP are developed by professional bodies composed primarily of accountants. Only one organization, the Financial Accounting Standards Board (FASB), actually issues statements of these principles for non-governmental organizations. Another organization, the Government Accounting Standards Board (GASB), addresses accounting by governments. While the government doesn’t make the rules, the Securities and Exchange Commission (SEC) mandates their use by all publicly-held companies.

The FASB has issued more than 150 statements of financial accounting principles covering such diverse topics as how to account for different types of revenue, how to report salaries paid, and how to report the purchase of another company. FASB statements are exceptionally detailed because they attempt to address every possible combination of factors that accountants might encounter. Despite this, some accountants manage to evade their purpose of presenting an honest and straightforward picture of an organization’s financial status, twisting and manipulating the data to present a distorted and deceptive financial statement. This is why it’s critical that enterprises routinely have their books audited by a disinterested third party — a certified public accountant (CPA) — whose purpose is to certify that their books and records are being kept in accordance with GAAP.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.