Accounting should be considered both a service activity and an information system and a descriptive and analytical discipline. Any of the meanings or descriptions that is adopted from accounting must contain the four bases that define it:
- the economic nature of the information measured and communicated regarding economic entities of any organizational level, presented to people interested in making judgments based on the information and making decisions using such information.
According to the recipients, the accounting is usually divided into financial accounting and administrative or managerial accounting. The first is defined as the branch of accounting focused on the preparation and presentation of a set of accounting statements with the purpose of providing information that is useful in making decisions of an economic nature by the majority of users, especially users. external (owners, suppliers, financial institutions, investors, government and government entities, workers and the general public).
The second refers more directly to information prepared and presented to be used by the people who, day by day, internally in the entity, must make decisions regarding its administration (directors, managers, administrators, officials, etc.). The generally accepted accounting principles (GAAP) discussed in this bulletin do not refer to this second branch of accounting.
Mexican Institute of Public Accountants (IMPC): «Financial accounting is a technique that is used to systematically and structured produce quantitative information expressed in monetary units of the transactions carried out by an economic entity and of certain identifiable economic events that affect it, with the in order to facilitate the various stakeholders to make decisions in relation to said economic entity. "
(North) American Accounting Association (AAA): “Accounting is an identification process. measurement and communication of economic information that allows making judgments based on the information and decision-making by those who use this information ».
(North) American Institute of Public Accountants (AICPA) «The basic purpose of financial accounting and financial statements is to provide financial information about individual companies, useful for making economic decisions
- Generally accepted accounting principles
The generally accepted accounting principles are a horn of doctrines associated with accounting, which serve as an explanation of current or current activities and as a guide in the selection of conventions or procedures applied by professionals in Public Accounting in the exercise of activities that are its own, independently of the entities analyzed and that have been generally accepted and approved by the Federation of Associations of Public Accountants of Venezuela, ausculted through its Permanent Committee on Accounting Principles.
The number of terms in the accounting literature is abundant to name the concepts and the classes of the same that make up said principles, for which the expression generally accepted accounting principles comprises what has been more precisely defined as:
Postulates or principles basic that constitute the foundation for the formulation of the general principles;
General principles, developed based on the postulates, which tend to ensure that the financial accounting information achieves the objective of being useful for making economic decisions, and
Principles applicable to the financial statements and specific items or concepts, that is, the individual and concrete specification of the financial statements and the specific items that comprise them.
The basic postulates or principles are equity and relevance.
Equity is linked to the ultimate objective of the financial statements. Those interested in the financial statements are many and very varied and sometimes their interests are mixed. The information must be as fair as possible and the interests of all parties must be taken into account in the appropriate balance. Accordingly, the financial statements should be free from undue influence or bias and should not be prepared to satisfy any particular person or group to the detriment of others.
Relevance requires that accounting information must refer to or be usefully associated with the decisions it aims to facilitate or the results it wishes to produce. Consequently, it is necessary to specify the specific type of information required in the decision-making processes by the users of the financial statements, based on the specific interests of those users and the economic activity of the entity (commercial, industrial, services, financial, insurance, non-profit, etc.).
The general principles basically comprise three different categories:
Assumptions derived from the economic environment: entity, emphasis on the economic aspect, quantification and unit of measurement.
Principles that establish the basis for quantifying the entity's operations and the economic events that affect it: original historical value, economic duality, ongoing business, accounting performance and accounting period.
General principles that the information must gather: objectivity, relative importance, comparability, sufficient disclosure and prudence.
Entity.It is an identifiable unit that carries out economic activities, made up of combinations of human resources, natural resources and capital, coordinated by an authority that makes decisions aimed at achieving the purposes for which it was created. The entity can be a natural person or a legal person, or a part or combination of them. It is not limited to the legal constitution of the units that compose it.
Emphasis. In the economic aspect. - Financial accounting emphasizes the economic aspect of transactions and events, even though the legal form may differ and suggest different treatment. Consequently, transactions and events must be considered, recorded and disclosed in accordance with their reality and financial sense and not merely in their legal form.
Quantification. - Quantified data provides strong help in communicating economic information and in making rational decisions.
Unit of measurement. - Money is the common denominator of economic activity and the monetary unit constitutes an adequate basis for measurement and analysis. Consequently, without disregarding other units of measurement, currency is the most effective means of expressing, before the parties, the exchanges of goods and services and the economic effects of the events that affect the entity.
Original historical value -The transactions and economic events that the accounting quantifies are recorded according to the amounts of cash that are affected or their equivalent or the reasonable estimate that is made of them at the time they are considered to be carried out for accounting purposes. These figures should be modified in the event of subsequent events that cause them to lose their meaning, applying the adjustment methods accepted by accounting principles that systematically preserve the fairness and objectivity of accounting information. If the figures are adjusted for changes in the general price level (NGP method) and they are applied to all the items that make up the financial statements, which are subject to change, it will be considered that there has been no violation of this principle;if the figures are adjusted according to the method that combines the changes in the general price level with the changes in the specific price level (mixed method), the net results for the period should coincide with those of the NGP method and only in this case will be considered that there has been no violation to the principle of the original historical value. Regardless of the application of one or the other method, the situation must be duly clarified in the information that is produced.the situation must be duly clarified in the information that is produced.the situation must be duly clarified in the information that is produced.
Economic duality. - For an adequate understanding of the structure of the entity and its relationships with other entities, the accounting presentation of: The economic resources available to it for the realization of its purposes and the sources of said resources is essential.
Business in progress or continuity. - The entity is normally considered as a going concern, that is, as an operation that will continue in the foreseeable future. It is assumed that the entity has no intention or need to liquidate or substantially reduce the scale of its operations. If there are founded indications that reasonably presume said intention or need, such situation must be revealed.
Accounting realization. - Accounting quantifies, preferably in monetary terms, the operations that an entity carries out with other participants in the economic activity and certain economic events that affect it. Such operations and economic events must be recognized promptly at the time they occur and recorded in the accounting. For this purpose, the following are considered carried out for accounting purposes: a) the transactions of the entity with other economic entities, the internal transformations that modify the structure of the resources or sources or, The economic events external to the entity or derived from the operations of this, the effect of which can be reasonably quantified in monetary terms.
Accounting period. - The need to make decisions in relation to an entity considered ongoing or of continuous existence, forces to divide its life into conventional periods. Financial accounting presents information about an entity's economic activity in those conventional periods. Operations and events as well as their derivative effects, which can be quantified, are identified with the Period in which they occur: therefore, any accounting information must clearly indicate the period to which it refers.
Objectivity. - The items or elements included in the financial statements must have a cost or value that can be reliably measured. In many cases the cost or value must be estimated; The use of reasonable estimates is an essential part of the preparation and presentation of financial statements and does not determine their reliability. However, when an estimate cannot be made on a reasonable basis. Such item should not be recognized in the accounting and therefore in the financial statements.
Relative importance. - Financial information only concerns that which is, due to its amount or nature, sufficiently significant to affect economic evaluations and decisions. An item is of relative importance when a change in it, in its presentation, valuation, description or any of its elements, could modify the decision of some of the users of the financial statements.
Comparability. - Economic decisions based on financial information require, in most cases, the possibility of comparing the financial situation and results in operation of an entity in different periods of its life and with other entities, therefore. accounting policies need to be applied consistently and uniformly. The need for comparability should not become an impediment to the introduction of better accounting policies, consequently when there are more relevant and reliable options, the entity must change the policy used and clearly state this in the information presented, indicating, duly quantified, the effect that said change produces in financial information. The same applies to the grouping and presentation of information.
Sufficient disclosure. - The accounting information presented in the financial statements must contain in a clear and understandable way everything necessary to judge the operation results and the financial situation of the entity; For this reason, it is important that the information provided contains sufficient elements of judgment and basic material so that the decisions of the interested parties are sufficiently founded.
Prudence. - Uncertainties inevitably surround many of the economic transactions and events, which forces them to be recognized through the exercise of prudence in the preparation of the financial statements. When professional judgment is to be applied to decide in those cases in which there are no bases to choose between proposed alternatives, the one with the least optimism should be chosen; but observing at all times that the decision is fair for users of accounting information. However, the exercise of prudence does not justify the creation of secret or hidden reserves or excess provisions, nor deliberately perform undervaluation of assets or income or overestimation of liabilities or expenses.
The 14 generally accepted accounting principles (GAAP) approved by the VII Inter-American Accounting Conference and the VII National Assembly of Graduates in Economic Sciences held in Mar del Plata in 1965, are stated as follows:
- Equity
Equity between opposing interests should be a constant concern in accounting, since those who use or
use accounting data may face the fact that their particular interests are in conflict. From this it follows that the financial statements must be prepared in such a way that they fairly reflect the different interests at stake in a given estate or company.
- Entity
Financial statements always refer to an entity where the subjective or proprietary element is considered as a third party. The concept of "entity" is different from that of "person" since the same person can produce financial statements of several "entities" of his property.
- Enconimics goods
The financial statements always refer to economic assets, that is, tangible and intangible assets that have economic value and therefore capable of being valued in monetary terms.
- Account Currency
Financial statements reflect equity through a resource that is used to reduce all its heterogeneous components to an expression that allows them to be easily grouped and compared. This resource consists of choosing a currency of account and valuing the assets by applying a "price" to each unit.
Generally, the money that is legal tender in the country in which the "entity" operates is used as the currency of account, and in this case the "price" is given in legal tender units.
In those cases where the currency used does not constitute a stable pattern of value, due to the fluctuations that it experiences, the validity of the principle that is sustained is not altered, since correction is feasible through the application of appropriate adjustment mechanisms.
- Going Company
Unless expressly stated otherwise, it is understood that the financial statements belong to a "going concern", considering that the concept that informs the aforementioned expression refers to any economic organization whose personal existence is fully valid and future projection.
- Valuation at Cost
The cost value -acquisition or production- constitutes the main and basic criterion of the valuation, which conditions the formulation of the financial statements called "situation", also in correspondence with the concept of "going concern", which is why this norm acquires the character of principle.
This affirmation does not mean to ignore the existence and origin of other rules and criteria applicable in certain circumstances, but, on the contrary, it means to affirm that in the absence of a special circumstance that justifies the application of another criterion, that of "must prevail" cost »as a basic valuation concept.
On the other hand, fluctuations in the value of the currency of account, with their sequel to corrections that affect or modify the monetary figures of the costs of certain goods, do not constitute, likewise, alterations to the expressed principle, but, in substance, constitute mere adjustments to the numerical expression of the respective costs.
- Exercise
In ongoing companies, it is necessary to measure the results of management from time to time, either to satisfy administrative, legal, fiscal reasons or to meet financial commitments, etc. It is a condition that the exercises are of equal duration, so that the results of two or more exercises are comparable to each other.
- Accrued
The equity variations that must be considered to establish the economic result are those that correspond to a financial year without considering whether they have been collected or paid.
- Objectivity
Changes in assets, liabilities and in the accounting expression of net worth, must be formally recognized in the accounting records, as soon as it is possible to objectively measure them and express this measure in the currency of account.
- Realization
The economic results should only be computed when they are carried out, that is, when the operation that originates them is perfected from the point of view of the applicable legislation or commercial practices and all the risks inherent to such operation have been weighted fundamentally. It should be established in general that the concept "realized" participates in the accrued concept.
- Prudence
It means that when you have to choose between two values for an asset element, you should normally choose the lowest, or else that an operation is accounted for in such a way that the owner's share is lower. This general principle can also be expressed by saying: "account for all losses when known and gains only when realized."
Exaggeration in the application of this principle is not convenient if it is detrimental to the fair presentation of the financial situation and the result of operations.
- Uniformity
The general principles, when applicable, and the particular rules used to prepare the financial statements of a given entity should be applied uniformly from one year to the next. The effect on the financial statements of any significant change in the application of the general principles and the particular rules must be pointed out by means of a clarifying note.
However, the principle of uniformity should not lead to maintaining unchanged those general principles, when applicable, or particular rules that the circumstances advise are modified.
- Materiality (significance or relative importance)
When considering the correct application of general principles and particular rules, it is necessary to act with practical sense. Frequently situations arise that do not fit within them and, however, do not present problems because the effect they produce does not distort the general picture.
Of course, there is no demarcation line that sets the limits of what is and is not significant and the best criterion must be applied to resolve what corresponds in each case, according to the circumstances, taking into account factors such as the relative effect in assets or liabilities, in equity or in the result of operations.
The principle of equity can be classified as fundamental or basic, since it marks as a general conduct to take into account when applying accounting. In his enunciation he reflects a kind of ethical rule for accountants.
There are three principles that are grouped as basic or valuation. They correspond to everything that is adjusted to the commitments of payment, collection, results of the year and costs. That of "Valuation at cost" is included in this classification due to its reference to the valuation of the cost of acquiring or manufacturing a good. "Accrued" is part of this classification, since its compliance aims to reflect the results of an exercise regardless of whether the event is concluded or not. The principle of «Realization» is very similar to the previous one since it is a mechanism to correctly reflect the results of an exercise.
The principles that make the qualities of the information are classified based on the obtaining, demonstration and realization of the information. The principle of objectivity represents a very important point in this classification, since it states that the information that the accounting provides must not be distorted for any reason, it must represent what happened. The principle of "uniformity" highlights the importance of a heterogeneous system to handle the data and thus be able to compare the exercises. "Prudence", as well as "materiality" mark forms of registration so that the information is true and treated correctly. The principle of "disclosure" is similar to the previous ones and marks the basis of all accounting work. The information should be clear and concise so that it is easily accessible and not confusing.
Finally, the Principles given by the socioeconomic environment include those that have to do with the company, the environment and society. "Entity" is included in this classification simply because it is the company. "Economic assets" is a principle that refers to tangible and intangible assets that have an economic value for the company or entity. "Account currency" is included in this classification because it marks the choice of a monetary unit depending on the medium where it is located. "Going company" marks the continuity of the company, it refers to it and its future. "Exercise" because it sets a standard to be able to analyze the progress, or not, of the company, dividing it into periods and then comparing them.
- The relationship that exists between the principles of valuation at cost and that of realization is that both establish the value that an exchange asset can have. The first, as its name implies, determines the cost value; the point of realization will determine the sale value of a good, since for its quantification the economic event has been considered already finished. The relationship between the principles of realization and accrued is that both apply when the economic act has been brought to cape. This is of vital importance since in this way the economic acts carried out will be reflected in the results of the period to which it really corresponds and thus it will also be possible to comply with the principle of exercise.The relationship between the principles of materiality and uniformity is that the first is the one that will alter the second.The uniformity of an exercise will be affected when a significant change arises (of relative importance). An example would be a change in presentation, in its valuation, in its description or in any element that could mean a change in decisions.
- Inventories.
Inventories are the items of current assets that are ready for sale. Merchandise owned by a company in the warehouse valued at acquisition cost, for sale or productive activities.
The internal control of inventories begins with the establishment of a purchasing department, which must manage the purchases of inventories following the purchasing process.
There are several methods to carry out inventory management and control, which are:
FIFO (First to Enter First to Exit)
UEPS (Last to Enter First to Exit)
PEPS method: type of perpetual inventory that details, by means of the Inventory Control Card, the exits and entries of the merchandise. It establishes that the first merchandise to be purchased is the first to be sold or to be released.
LIFO method: type of perpetual inventory that establishes that the last merchandise to be bought is the first to be sold or shipped.
Among the internal control measures we have:
- Periodically make physical counts. Check physical inventories with accounting records. Protect inventories in a covered warehouse with doors so that thefts are avoided. Deliver goods only with authorized requisitions. Protect inventories with an insurance policy. Do random checks to compare with the ledgers.
Income: are items of creditor origin and are part of the nominal accounts and the income statement.
Income originates from different concepts such as:
Sales, fees, interests, commissions, etc.
Download the original file
