Principles of Accounting for POA 0045

Monetary measurement concepts.

Monetary measurement refers to the fact that an enterprise should take currency as the main unit of measurement in accounting, and record and reflect the production and operation process and business results of the enterprise. The economic activities of accounting entities are diverse and complex. In order to achieve the purpose of accounting, it is necessary to comprehensively reflect the various economic activities of the accounting entity, which requires a unified measurement scale.

The measurement scales that can be selected are money, physical goods, and time, but under the conditions of commodity economy, money, as a special commodity, is most suitable to serve as a unified measurement scale. While choosing money as a unified measurement scale, accountants should use physical measurements and time measurements as auxiliary measurement scales.

In order to actually carry out accounting, in addition to clarifying the use of currency as the main lecturer's scale, it is also necessary to specifically determine the base currency of accounting, that is, to reflect the financial status and operating results of the accounting entity according to the unified currency of the type of insurance. Currency measurement implies the assumption of currency value stability.

This paragraph] has two meanings of monetary measurement.

The Accounting Law stipulates that the RMB shall be used as the base currency for accounting, and the business income and expenditure shall be based on currencies other than the RMB. While money is the main unit of measurement, it is necessary and should be supplemented by physical measures and labor measures.

The second is to assume that the currency value is stable, because only when the currency value is stable or relatively stable, the value of assets at different points in time can be comparable, the income and expenses of different periods can be compared, and the operating results can be calculated and determined, and the accounting information provided by accounting can truly reflect the economic activities of the accounting entity.

Advantages and disadvantages of monetary measurement.

It uses a common monetary unit of measurement for all measurement activities, and the measurement results can be added, subtracted, multiplied, and divided to obtain accounting reports and be able to be further divided. However, many of the activities that affect businesses are difficult or impossible to measure in monetary terms. The knowledge and skills of the members or employees of the enterprise are highly valued, however, they cannot be accurately measured in monetary terms.

Customer loyalty guarantees the future earnings of a business, but past statements only reflect past realized earnings. While the concept of monetary measurement is used in accounting, managers cannot expect to get a panorama of the various elements of the business from the accounting reports. On the other hand, behind the measurement of money is the assumption that the value of the currency is constant.

In accounting, it is common to summarize and compare monetary amounts at different points in time, which is based on the premise that the currency value remains constant, and inflation accounting has been created to solve the problem of continuous inflation in real life.

Principles of monetary measurement.

It can be valued in monetary terms.

Principle of prudence.

The principle of prudence, also known as the principle of prudence, the principle of conservatism, conservatism, etc., should be treated with prudent professional judgment and prudent accounting methods when there are uncertainties and risks in the accounting environment, and the recognition of accounting elements and the accuracy of measurement are affected. Fully anticipate possible liabilities, losses and expenses, and minimize or eliminate possible assets and gains, so as to avoid blind optimism on the part of users of the statements due to the accounting information reflected in the financial statements.

The principle of prudence can be embodied in confirmation, measurement, reporting, etc. It requires: that the accounting recognition standards are sound and reasonable; Accounting measurements must not overstate assets, rights and profits; Accounting reports provide the most comprehensive accounting information possible.

The principle of prudence has been developed on the basis of conservatism and cannot be equated entirely with conservatism. Because the credo of conservatism is: recognize all possible losses, but avoid projecting any possible gains.

Calculate the possible losses and ignore the possible gains. At the extreme, it is a consistent, deliberate and blanket overstatement of costs and losses and a understatement of assets and profits. Even to establish secret preparations, artificially manipulate profits.

Misleading information.

The basis and effect of applying prudence to the original Sobi, first, there are a large number of uncertain factors in the accounting environment that affect the accurate confirmation and measurement of accounting elements, and must be estimated and judged according to certain standards; Second, because in the market economy, the economic activities of enterprises have certain risks, and it is necessary to be cautious to improve the ability to resist business risks and market competitiveness; Third, bulk transportation makes accounting information based on prudence, avoids exaggerating profits and equity, and conceals unfavorable factors, which is conducive to protecting the interests of investors and creditors; Fourth, it can offset the negative impact of excessive optimism of managers and is conducive to correct decision-making.

The principle of prudence is a complementary principle when the conditions of the principle of objectivity do not exist, and is contrary to the principle of consistency. It can easily lead to underestimation of assets, income, liabilities and expenses, which affects the correctness of net profit calculation. Therefore, it is prudent to apply the principle of caution.

Prevent misuse or misrepresentation of the use of the precautionary principle for secret preparations, excessive withdrawals, deliberate depressing of assets or earnings, or deliberate inflating of liabilities or expenses. Provide correct career judgment and good career first.

Examples of the application of the prudential principle include: the provision for long-term losses in accounts receivable, the establishment of bad debt provisions; The inventory at the end of the period is valued according to the "lower method of the cost of the offsetting beam and the market price"; Valuation of issued inventory on a last-in-first-out basis; Depreciation of fixed assets is provided according to the "accelerated depreciation method".

The principle of history.

Historically, this principle refers to the fact that the recording of accounting elements should be measured and valued according to the standard issued by economic business, and the measurement and valuation records of assets should be carried out according to the actual expenditure of assets according to the measurement requirements of accounting factors. The repayment of liabilities is measured and valued according to the actual expenditure of liabilities, and the assets minus liabilities are recorded and the equity of the litigant is valued from the historical capital, which is different from the replacement value, realizable value, and market value of the balance in the statement.

The original intention of adopting the historical principle is to recognize the balance sheet in the market**, which means that the current situation of the company's assets is destroyed before the capital investment and asset ratio reflect the financial status of the enterprise and the ratio of operating performance needs to be based on history.

This paragraph] history of the rationality and limitations of this principle.

The rationality of following the principles of history:

1) The historical trading of the dual market virtue knot reflects the principle that the market ** is in line with the principle;

2) The original historical voucher is verified on the basis of this;

3) Historical data is easy to access, simple and easy to implement, and is linked to the implementation principle;

4) The historical valuation shall be adjusted to prevent arbitrary changes in the accounting records and maintain the reliability of the accounting information.

Limitations of the Historical Principle:

Price fluctuations or currency stability are stable, and the historical instinct truly reflects the financial status and operating performance of the accounting entity, weakening the information usability, and influencing the decision-making before the calculation.

Accounting equation, also known as accounting equilibrium formula, or accounting equation, is a general expression of the intrinsic economic relationship of various accounting elements using mathematical formulas.

A static accounting equation is an accounting equation that reflects the financial position of a business at a particular date and is made up of a combination of static accounting elements (assets, liabilities, and owners' equity). The formula is "Assets = Liabilities + Owners' Equity".

The dynamic accounting equation is an accounting equation that reflects the operating results of a company in a certain accounting period, and is composed of a combination of dynamic accounting elements (income, expenses, and profits). The formula is "income, expenses, and profits".

Comprehensive Accounting Equation: Assets + Expenses = Liabilities + Owners' Equity + Income.

An accounting equation is an identity that indicates the basic relationship between various accounting elements, so it is also called an accounting identity or an accounting equilibrium.

Assets = Liabilities + Owners' Equity.

This equation, known as the financial status equation, reflects the relationship between the three accounting elements of assets, liabilities and owners' equity, revealing the financial health of a business at a particular point in time. Specifically, it shows the various assets owned by the enterprise at a specific point in time and the basic status of the claims of creditors and investors on the assets of the enterprise, and shows that all the assets owned by the enterprise are provided by investors and creditors.

Revenue - Expenses = Profit.

This accounting equation, known as the financial results equation, reflects the relationship between the three accounting elements of revenue, expenses and profits, revealing the operating results of a business in a specific period.

Assets = Liabilities + (Owner's Equity + Income – Expenses).

This equation combines the relationship between the equation of a firm's financial position before the distribution of profits and the equation of operating results. Reveals the interconnectedness between a company's financial health and operating results.

The Commercial Press's English-Chinese Investment Dictionary explains: Accounting equation.

In English, it is: accounting

equation。In the accounting process, the equivalence relationship between assets and liabilities. For example, the company's assets minus liabilities are equal to shareholders' equity.

Profit refers to the operating results of an enterprise in a certain accounting period. Under normal circumstances, if the enterprise realizes profits, it indicates that the ownership of the enterprise will increase and the performance will be improved; On the other hand, if the enterprise incurs a loss (i.e., the profit is negative), it means that the owner's equity of the enterprise will be reduced and the performance will decline. Therefore, profit is often an important indicator to evaluate the performance of corporate management, and it is also an important reference for investors and other users of financial reports when making decisions.

Profit includes the net amount of income minus expenses, gains and losses directly included in the current profit, etc. Among them, the net income after deducting expenses reflects the performance of the company's daily activities, and the gains and losses directly included in the current profit reflect the performance of the company's non-daily activities. Gains and losses directly included in the current profit refer to the gains or losses that should be included in the profit or loss for the current period, which will eventually cause an increase or decrease in the owner's equity, and are not related to the owner's capital investment or the distribution of profits to the owner.

Enterprises should strictly distinguish between income and profits, expenses and losses, so as to reflect the operating performance of the enterprise more comprehensively.

Profit reflects the concept of income minus expenses and gains minus losses, therefore, the recognition of profits mainly depends on the recognition of income and expenses and gains and losses, and the determination of its amount also depends mainly on the measurement of the amount of income, expenses, gains and losses.