The “Rich Dad Poor Dad” Philosophy
The domain of personal finance is exceptionally wide. There are lots of experts who have differing opinions, who coexist in the personal finance arena. However, in the early 2000s, a relatively unknown author by the name of Robert Kiyosaki started making waves in this area. Some of the ideas that he suggested were radically different […]
How dire is India’s bad debts problem and what you need to know about it
How Dire is the Bad Debts Problem in Indian Banks In recent months, the news reports about India’s bad debts problems have been appearing almost on a daily basis. With the ballooning NPAs or Non Performing Assets (the term used to refer to debts owed to banks going sour), the Central government is grappling with […]
Risks Faced By Banks
It is often said that profit is a reward for risk bearing. Nowhere is this truer than in the case of banking industry. Banks are literally exposed to many different types of risks. A successful banker is one that can mitigate these risks and create significant returns for the shareholders on a consistent basis. Mitigation […]
Price to Book Value Ratio – Formula, Meaning, Assumptions and Interpretation
Formula Price to Book Value = Current Market Price / Total Assets – Intangible Assets The value of assets is taken from the most recently published balance sheet. Meaning The price to book value ratio looks at an immediate liquidation scenario. Investors therefore compare the price that they are paying for the company against what […]
Important Decisions Influenced by Cost Modeling
In the previous article, we studied the cost modeling process. We understood the various steps which have to be undertaken in order to model costs. However, we also need to understand that cost modeling is an iterative process. This means that a company creates a cost model, runs the numbers, compares those numbers with their […]
Following are the basic fundamental principles of Accounting:
Accounting needs all values to be recorded in terms of a single monetary unit. It cannot account for goods like the barter system.
Assigning values to goods and items therefore becomes a problem since it is subjective. However, accounting has prescribed rules to deal with the same.
A company is said to have an eternal existence. Once it is formed, the only way to end it is by dissolution. It does not die a natural death like humans do. Hence, accountants assume the going concern principle.
This principle implies that the firm will continue to do its business as usual till the end of the next accounting period and that there is no information to the contrary.
Because of the going concern principle, organizations can function on credit, account for accounts receivables and payables which intend to receive or pay in the future and charge depreciation assuming that the machine will be used for many years.
In case, the management has information that the operations will be suspended in the near future, normal accounting ceases. A special type of accounting meant for dissolution purpose is used.
Accountants are said to be very conservative by nature. They want to hope for the best and be prepared for the worst. This is displayed in the rules that they have created for their profession.
One of the central tenets of accounting is the principle of conservatism.
According to this principle, when there is doubt about the amount of expected inflows and outflows, the organization must state the lowest possible revenue and the highest possible costs.
This can be seen in the fact that accountants value inventory at lower of cost or market price. However, such conservatism helps the company be prepared for any forthcoming financial crises.
Closely related to the principle of conservatism is the cost principle. The cost principle advocates that companies should list everything on the financial statements at the cost price.
Usually assets like land and building, gold, etc appreciate. However, the accountants will not allow this appreciation to be reflected on the financial statements of the company till it is realized.
Accountants believe that the market value of anything is just an opinion. Accountants cannot account on the basis of opinions because there are many of them.
The selling price of something is a fact since someone has paid for it and the same can be verified. Hence accounting works on cost principle and therefore on facts.
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An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
