ACCOUNTING POLICIES Meaning and
Definition
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Accounting policies refer to a set of guidelines and procedures that an organization follows in preparing and presenting its financial statements. These policies are established to ensure consistency and transparency in financial reporting, enabling users to make informed decisions.
Accounting policies encompass various aspects of financial reporting, including the recognition, measurement, presentation, and disclosure of transactions and events. These policies are typically developed based on generally accepted accounting principles (GAAP) or any other applicable accounting framework, such as International Financial Reporting Standards (IFRS).
They cover a wide range of areas, including revenue recognition, inventory valuation, depreciation, amortization, and impairment, among others. The purpose of accounting policies is to provide a standardized framework for recording and reporting financial information, ensuring comparability among different entities within the same industry or sector.
Additionally, accounting policies may also include guidelines for the treatment of significant accounting estimates and judgments, such as the valuation of contingent liabilities, fair value measurement, and recognition of provisions.
Accounting policies are essential for organizations as they provide a consistent set of rules to be followed in preparing financial statements. They serve as a foundation for internal controls, enhance the reliability of financial information, and assist auditors in evaluating the appropriateness and accuracy of financial statements. Furthermore, accounting policies can also impact important decisions, such as investment analysis, creditworthiness assessments, and strategic planning.
Etymology of ACCOUNTING POLICIES
The word "accounting" derives from the Old French word "aconter" which means "to reckon" or "to account for". It further traces back to the Latin word "computare" meaning "to calculate" or "to sum up".
The word "policies" is derived from the Middle English word "policie" or "policiee", which refers to a plan or course of action. The word entered English from the Old French word "police", meaning "government", "public order", or "regulation".
When combined, "accounting policies" refers to the set of principles, procedures, and practices that an organization follows in recording, reporting, and presenting its financial information.
