Characteristics and classifications of accounting principles

The following are the main characteristics of accounting principles: Relevance or usefulness: Relevance refers to usefulness. Application of such principles makes the accounting information more meaningful and useful to the users. Any accounting guidelines which do not enhance the utility of the accounting records to its users cannot be accepted as an accounting principle. Objectivity: Objectivity denotes freedom from personal bias. A principle must be objective in the sense that the accounting information is not affected or influenced by personal bias and whims but solidly supported by facts and figures. This in turn increases the reliability of accounting statements. Feasibility: Feasibility relates to the operational aspect. Accounting principles must be applied easily and economically without any complexity or problem. The cost in terms of time, money, efforts should not outweigh its benefits to the users of accounting data.

Therefore, it may be concluded that accounting principles should be recognized in the light of their usefulness to the users of accounting information and their relevance to the decision-making processes. Secondly, these principles ensure fairness, justice, impartiality in the processing and reporting of the accounting information, which itself is free from undue influence. Lastly, accounting principles should reflect economic reality, and the choice should depend upon the economic consequences.


The term ‘Principle’ refers to the fundamental belief or a general truth which once established does not change. It also means the rule of action or conduct and can be applied to the rules of accounting. In short, accounting principles are usually the concepts and conventions which have been adopted as a general guide by the accountants all over the world. However, these principles are not the result of any laboratory tests or experiments unlike the test of natural sciences but mere conventions and practices. Therefore, it can be concluded that accounting principles are not eternal truths, because they are not based on observations and experiments on conventions, reasons and experience and serve as guidelines to ensure uniformity and understandability and enhance the usefulness of accounting statements in a fast changing business environment.

The accounting principles can he classified into two categories: Accounting concepts Accounting conventions

The term accounting concept is used to connote the basic accounting postulates, i.e. the necessary assumptions and conditions upon which accounting is based. It refers to the accounting propositions upon which accounting are based. Actually, the concepts are self-evident statements or truths and are fundamental to the accounting practice. Accounting concepts are so basic that people accept them as valid without questioning. Accounting concepts provide guidelines in processing the accounting information, i.e. recording, classifying, summarizing, interpreting and reporting.


The accounting conventions cannot customs, traditions or practices as a guide to the preparation of accounting statements. These are the rules which are referred to for the solution of certain given problems in accounting.