Accounting principles as the basis for keeping accounting books


Accounting principles are understood as a set of commonly used rules created on the basis of legal regulations, compliant with accounting standards. The knowledge of these standards is obligatory for all units keeping records based on the books of accounts. Let's check what the accounting principles are for and what types have been distinguished.

What are the accounting rules applied to?

Each unit keeping books of accounts pursuant to Art. 4 sec. 1 of the Accounting Act, it should draw up its own accounting policy. It is understood as a set of rules and guidelines characterizing a given enterprise, according to which the books of accounts are kept. Entities are required to apply the adopted accounting principles (policy) reliably and clearly, presenting the property and financial situation as well as the financial result. The developed rules should not only comply with the provisions of the Act, but also take into account the specific nature of the organization's activities. When creating rules, you should follow the accounting rules, which can be divided into three groups: universal, primary (parent) and specific (subordinate). Apart from the issue of establishing the accounting policy in the enterprise, the accounting principles should be applied by all entities in the current accounting practice.
The entities obliged to keep complete books of accounts are listed in Art. 2 clause 1 of the Accounting Act, including:
- commercial companies;
- natural persons, civil partnerships of natural persons, general partnerships of natural persons and partnerships, if their net revenues from the sale of goods, products and financial operations for the previous financial year amounted to at least the Polish currency equivalent of EUR 2,000,000;
- organizational units without legal personality, e.g. housing communities;
- branches and representative offices of foreign entrepreneurs.

Universal rules

Universal accounting principles, as opposed to basic and detailed principles, are applied globally in all countries, regardless of the economic system or political system prevailing in a given country. On the other hand, subordinate and superior rules are established on the basis of legal regulations in force in a given country. Among the universal rules, three principles can be distinguished:

  • the principle of two-sided writing,
  • the principle of subjectivity,
  • the principle of periodization.

The principle of two-sided recording

The principle of two-sided entry applies to the posting of economic events that should be recognized on both sides of the accounts. A given economic transaction should be recorded in at least two synthetic accounts, but on both sides, ie both on the asset and liability side, which allows the balance sheet to be kept in balance. The transaction amount on the debit and credit debit side should be equal. Synthetic accounts are accounts on which economic events are posted, and the balance sheet sum of the summaries of these accounts on the debit and credit side should be equal to each other. Synthetic accounts may include balance sheet and result accounts included in the company's chart of accounts.

The principle of subjectivity

Accounting records should be kept in business units defined by the name and separated in terms of assets, organization and law. One economic transaction cannot be posted to several different business units.

The principle of periodization

The principle of periodization is otherwise known as the principle of periodic financial statements. It consists in the necessity to divide economic operations into the periods they relate to. Records of economic events should take place at specific intervals, e.g. in the financial year in which the event actually took place.

Overarching Principles

When creating its own rules for keeping books of accounts, an entity should rely on superior principles, which include:

  1. the principle of continuity,
  2. the going concern principle,
  3. the principle of materiality,
  4. the principle of accrual,
  5. the principle of matching revenues and costs,
  6. the precautionary principle,
  7. the principle of non-compensation,
  8. the principle of credibility.

The principle of continuity

The principle of continuity provides for the application in all subsequent years of the guidelines originally established by the enterprise in the kept accounting records. Under Art. 5 sec. 1 of the Accounting Act, this continuity is to concern, among others:

  • the same grouping of business operations,
  • valuation of assets and liabilities,
  • making depreciation or amortization write-offs,
  • determining the financial result,
  • preparation of financial statements.

Moreover, the value of assets and liabilities at the end of the financial year should be recognized in the same amount on the opening day of the next year. In the case of enterprises keeping complete books of accounts, the financial year does not have to be equal to the calendar year. In the light of the Accounting Act, the financial year is a calendar year or other period of 12 consecutive full calendar months.
The financial year may be shortened if the entity commenced operations in the first half of the calendar year - then the first financial year is the period from the date of commencement of operations to the last day of the year in which the operations began.

The application of this principle is aimed at ensuring the possibility of comparing data in subsequent financial periods for analysis and the possibility of continuing settlements at the turn of financial years.

The going concern principle

The going concern principle is based on Art. 5 sec. 2 of the Accounting Act, which says that the adopted principles applied in the entity's accounting policy should be continued in the foreseeable future in an unchanged extent, that is, assuming that the company will not go into liquidation or bankruptcy. Usually, this period is assumed to be 1 year. The entity's manager is responsible for determining the entity's ability to continue as a going concern, who, when making the assessment, takes into account all information available as at the date of the financial statements.

Principle of materiality

The kept accounting books should contain all economic events that have a significant impact on the assessment of the financial situation of the entity. These data should also be included in the financial statements. On the other hand, with regard to less significant events, appropriate simplifications can be used, as long as it does not affect a reliable picture of the company's financial situation (e.g. apply a one-off depreciation write-off of fixed assets of insignificant value). Due to the fact that the provisions of the Accounting Act do not explicitly indicate the method of verifying the significance of individual economic events, the simplifications used in practice consist in setting amount or percentage thresholds for individual categories of economic operations. The rules for applying simplifications may be included in the entity's accounting policy. Nevertheless, it should be borne in mind that the principle of materiality should be analyzed individually, taking into account the circumstances surrounding a specific economic operation.

The principle of accrual

The accrual principle pursuant to Art. 6 sec. 1 of the Accounting Act consists in recognizing in the books of accounts revenues and the corresponding costs to the period in which they actually arose. The accrual principle indicates that all revenues and costs should be included in the accounting books and financial statements in the period of the corresponding activities, regardless of the date of their payment. In practice, this means that a given operation is recognized in profit or loss, regardless of whether there has been an inflow or outflow of cash from the cash register. Contrary to full accounting books, a taxpayer keeping records based on simplified accounting (KPiR or lump sum) has the option of choosing the cost settlement method: cash or accrual.

The principle of matching revenues and costs

In accordance with the principle of proportionality, the incurred costs of obtaining specific revenues must be recognized in the accounting books in the same reporting period as the corresponding revenues. This principle is particularly applicable in the case of direct costs, i.e. manufacturing costs of the products sold. In practice, this means that in a given settlement period, only the part of expenses that corresponds to the income incurred in that period is included in the costs.

Example 1.

The production and trade company purchased 20 springs worth PLN 10 net for further resale. During the last month, the company sold only 10 springs for PLN 15 net. The income from the sale of the springs will be PLN 150 net. However, taking into account the principle of proportionality, the cost of products sold this month will be only PLN 100, because this is the cost that the company actually incurred for their purchase.

The precautionary principle

Pursuant to Art. 7 sec. 1 of the Accounting Act, individual assets and liabilities should be measured based on the actual costs incurred for their acquisition, bearing in mind the prudence principle. When making a prudent valuation, you should in particular take into account:

  • a decrease in the use or commercial value of assets, including those made in the form of depreciation or amortization write-offs;
  • only unmistakable other operating income and extraordinary profits;
  • all other operating expenses and extraordinary losses incurred;
  • provisions for risk known to the entity, possible losses and the effects of other events.

The application of the prudence principle aims to obtain a fair view of the company's financial position by limiting any valuation of assets and liabilities.

The principle of non-compensation

According to Art. 7 sec. 3 of the Accounting Act, the value of individual assets and liabilities, revenues and related costs, as well as extraordinary gains and losses are determined separately. Therefore, different types of assets and liabilities, related income and expenses, and extraordinary gains and losses should not be offset against each other. This means that when accounting for revenues or liabilities relating to, for example, one counterparty, each transaction should be reported as a separate item. Aggregate entries cannot then be used. The situation is different in the case of one type of event. In this case, posting can be made collectively within a given period, e.g. exchange differences.

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The principle of credibility

Operations shown in tax books should undoubtedly be presented in a fair manner, enabling a clear and transparent financial assessment of a given enterprise.

Detailed rules

In addition to the universal and basic principles, there are also detailed principles specifying the above principles that should be followed by every unit keeping books of accounts. The detailed rules include:

  • the principle of documentation - each economic event that took place in a given unit should be properly documented;
  • the principle of completeness - documentation should always be complete;
  • the principle of transparency - accounting records should be kept in a clear and transparent manner;
  • the principle of timeliness and timeliness - the latest available information should always be taken into account;
  • the principle of comparability of reports - the books of accounts are kept in the Polish language and currency. Both accounting records and financial statements should be kept in such a way as to give the possibility of easy comparison.