Basic Principles of Managerial and Financial Accounting

Managerial accounting is a process involved with giving information to managers to aid them in decision making and other related operations in the organization. On the other hand, financial accounting entails giving information through financial statements to people outside a company or an institution, such as creditors, banks, government agencies and stockholders among others.

Basic managerial and financial accounting principles are the general set of laws and ideas that form the foundation on which more comprehensive accounting rules are built. They are part of the generally accepted accounting principles (GAAP). GAAP comprises of three set of rules which include, the fundamental accounting principles as well as the comprehensive accounting standards provided by the financial accounting standards board (FASB). GAAP also includes the commonly established industry principles. However, the paper will focus on the basic principles of managerial and financial accounting.

Cost principle is one of these basic rules which call for organizations to account and give report on acquirement cost instead of the reasonable marketplace value for most of the assets and liabilities. Another basic accounting principle is the revenue principle. It calls for organizations to record when revenue is realizable or has been realized. Furthermore, revenue principle calls for record when the revenue is received rather than when the cash is accepted. It is a system in accounting called accrual basis accounting.

There is yet another basic rule in accounting called the matching principle. This principle requires that the costs and the revenues be harmonized provided it is reasonable to do so. It is worth noting that this principle requires that costs are recognized not when the work or a product is completed but when a contribution is made to the returns. It provides an opportunity for greater evaluation of productivity and performance since it spells out how much was spent in order to earn a certain amount of revenue. This principle applies best in depreciation and ‘cost of goods sold’ scenarios.



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