This means an amount has been set to provide the service/sell the item – the cash does not have to be received to book the revenue earned.Īn IU basketball fan purchases season tickets for the upcoming season for a total of $400 and there are 20 home games a season. Measurability – Both the cost of the service provided/saleable item and the expense to provide the service/saleable item must be set.If there are questions on the collectability of service/saleable items, direct them to the Accounts Receivable department for all non student related questions or the campus bursar's office if they are student related. This means that IU must feel confident that the money will be received after the service is performed or the item is sold. Collectability – IU must be reasonably assured that it is going to be paid a set amount.Performance – The service and/or saleable item ownership must be transferred to the buyer and IU (the seller) must no longer have control over the saleable item or the service had been performed.In order to properly recognize revenue under accrual accounting, users must ensure the below criteria have been met: IU uses accrual accounting where revenues are recognized when realized and earned, not based on when cash is received (cash basis). This principle is intended to eliminate and mitigate against any overstatements in revenue. The revenue recognition principle ensures consistency when recording revenue on an entity’s income statement. What Are the Five Basic Accounting Principles? Revenue Recognition Internally it is important for accurate financials to be available for executive leadership to compare units within the university. As an example at IU, it is important for the external financial statements to be accurate and consistent as they are audited by the State Board of Accountancy who have a major impact on state appropriation, executive decision making, external ratings for funding, etc. They also ensure consistency from entity to entity which is essential when comparing numerous financials within a given industry. Standardized accounting principles ensure consistency for multiple fiscal periods to more accurately analyze comparative financial data. These principles are needed in order to standardize and regulate various accounting methods and assumptions. Why are Accounting Principles Important and Needed?Īccounting Principles are important to ensure that financial information is acceptable, accurate, and understandable to both internal and external users. Because Indiana University receives funding from the local, state and federal level, IU follows both US GAAP and the generally accepted accounting principles issued by GASB. Indiana University must follow guidelines from two separate governing organizations – US Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards Board (GASB). There are many frameworks of accounting principles used for various types of business entities around the world. Introduction to Accounting Principles What are Accounting Principles?Īccounting principles are general rules and guidelines that entities must follow in order to accurately report their financial statements. Additionally, examples will be provided to help illustrate how the principles are used within the university. Information presented below will walk through the five main accounting principles which acts as the pillar for financial recording and reporting at IU. This standard discusses fundamental concepts as it relates to recordkeeping for accounting and how transactions are recorded internally within Indiana University.
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