Using accounting policies is vital to ensure that the accounts are prepared in the same way no matter which accountant is producing the accounts. It ensures that certain changes are dealt in the same way and therefore the owners can feel confident that the information calculated is correct.
Objectivity: When ever possible, accounting information should be factual (objective) rather than someone's opinion (subjective). Accountants prefer facts, rather than opinion as they are unlikely to cause dispute. This concept is at the heart of valuing assets.
Note: At times an opinion can not be avoided e.g. when calculating the amount to be depreciated.
Cost: Assets should be valued at the lowest of cost or Net Realisable Value, which ever is lower.
Going concern: those preparing financial statements are to assume the business will continue trading in the foreseeable future. Therefore any possible resale…