Accounting principles are understood as a set of generally applicable rules created on the basis of legal provisions consistent with accounting standards. Knowledge of these standards is mandatory for all departments that maintain accounting on the basis of accounting books. Let’s figure out why accounting principles are needed and what types there are.

What are accounting principles used for?

According to Article 4(1) of the Accounting Law, each accounting entity must develop its own accounting policies. It is understood as a set of principles and guidelines that characterize a given enterprise, in accordance with which accounting is conducted. The organization is obliged to reliably and clearly apply the accepted accounting rules (policies), reflecting the property and financial position and financial results. The developed rules must not only comply with the provisions of the Law, but also take into account the specifics of the organization’s activities. When developing rules, one should be guided by accounting principles, which can be divided into three groups: universal, basic (superior) and specific (subordinate). In addition to the issue of forming accounting policies in a company, accounting principles must be applied by all organizations in everyday accounting practice.

Organizations required to maintain full accounting records are listed in section 2(1) of the Accounting Law and include:

  • commercial organizations;
  • individuals, civil partnerships of individuals, general partnerships of individuals and partnerships, if their net proceeds from the sale of goods, products and financial transactions for the previous financial year amounted to at least the equivalent in Polish currency of 2,000,000 euros;
  • organizational units without legal personality, for example, housing communities;
  • branches and representative offices of foreign entrepreneurs.

Universal principles

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

  • two-way recording principle;
  • principle of subjectivity;
  • periodization principle.

Two-way recording principle

The double-entry principle applies to the recording of economic events that must be recorded on both sides of the accounts. This economic transaction must be reflected in at least two synthetic accounts, but on both sides, i.e. both on the asset side and on the liability side, which allows you to maintain a balance sheet. The transaction amount on the DI and MA side must be equal.

Synthetic accounts are accounts on which economic events are recorded, and the balance amount of the summary of these accounts on the Debit and Ma sides should be equal. Synthetic accounts include the balance sheet and profit and loss accounts included in the company’s chart of accounts.

Principle of subjectivity

Accounting must be maintained in economic units, defined by name and divided by asset, organization and legal status. One economic transaction cannot be reflected in several different economic units.

The principle of periodization

The principle of periodization is also known as the principle of periodic financial reporting. It is based on the need to divide economic transactions into the periods to which they relate. The recording of economic events must be carried out at specific time intervals, for example, in the financial year in which the event actually occurred.

General principles

When creating its own accounting rules, an organization must rely on higher principles, which include:

  • principle of continuity;
  • going concern principle;
  • principle of materiality;
  • accrual principle;
  • the principle of matching income and expenses;
  • precautionary principle;
  • principle of prohibition of compensation;
  • principle of reliability.

Principle of continuity

The continuity principle states that the benchmarks initially set by a company in its financial statements apply in all subsequent years. According to Art. 5 section 1 of the Accounting Law, this continuity should concern in particular:

  • identical grouping of business transactions;
  • valuation of assets and liabilities;
  • writing off depreciation or amortization;
  • determining financial results;
  • preparation of financial statements.

In addition, the value of assets and liabilities at the end of the financial year must be reflected in the same amount at the opening date of the next year.

In the case of full accounting companies, the financial year does not have to be equal to the calendar year. According to the Accounting Law, a financial year is a calendar year or any other period of 12 consecutive full calendar months.

The financial year can be shortened if the company began its activities in the first half of the calendar year – then the first financial year is considered to be the period from the date of commencement of activities to the last day of the year in which the activities began.

The application of this principle is intended to ensure the possibility of comparing data from one financial period with the next for analysis purposes and the possibility of continuing accounting at the turn of the financial year.

The going concern principle

It is based on section 5(2) of the Accounting Law, which states that the principles adopted in a company’s accounting policies must be maintained for the foreseeable future on a substantially unchanged basis, that is, on the assumption that the company will not be wound up or go bankrupt . Typically this period is taken to be one year. Determining a company’s ability to continue as a going concern is the responsibility of its manager, who takes into account all information available at the date of the financial statements in making the assessment.

Materiality principle

Accounting must reflect all economic events that significantly affect the assessment of the organization’s financial position. These data must also be included in the financial statements. On the other hand, appropriate simplifications can be applied to less significant events if this does not affect a reliable picture of the financial position of a particular company (for example, a one-time write-off of depreciation on fixed assets of insignificant value). Due to the fact that the provisions of the Accounting Law do not contain a direct indication of the method for checking the materiality of individual business events, the simplifications used in practice consist in establishing threshold values ​​of amounts or percentages for certain categories of business transactions. Rules for applying simplifications may be included in the organization’s accounting policies. However, it should be remembered that the principle of materiality must be analyzed individually, taking into account the circumstances associated with a particular business transaction.

Accrual principle

The accrual principle, in accordance with paragraph 1 of Article 6 of the Accounting Law, is to recognize income and related expenses in accounting before the period of their actual occurrence. The accrual principle means that all income and expenses must be reflected in the accounts and financial statements in the period of relevant activity, regardless of the date of payment. In practice, this means that the transaction is reflected in the financial result regardless of whether there was an inflow or outflow of cash from the cash desk.

In contrast to full accounting, a taxpayer who maintains accounting according to a simplified scheme (KPiR lub ryczałt) has the opportunity to choose a cost accounting method: cash method or accrual method.

according to the accrual basis, for example, wages due to employees are recognized in December even if payments were made in January, or interest income on time deposits is recognized in the current year’s accounts if they have a maturity date, for example in January of the next financial year , and refer to the current year.

The principle of matching income and expenses

In accordance with the matching principle, costs incurred to obtain specific income must be recognized in accounting in the same reporting period as the corresponding income. This principle is especially applicable in the case of direct costs, i.e., among other things: the costs of producing goods sold. In practice, this means that in a given billing period, only that part of expenses that corresponds to the income received in this period is included in costs.

An Example.

A production and trading company purchased 20 springs for a net amount of 10 zlotys for further resale. Over the past month, the company sold only 10 springs worth 15 zlotys net. The income from the sale of springs will be PLN 150 net. However, taking into account the principle of commensurability, the cost of products sold this month will be only 100 zlotys, since these are actually the costs incurred by the company when purchasing them.

Precautionary principle

Pursuant to section 7(1) of the Accounting Law, individual assets and liabilities must be measured on the basis of the actual costs incurred to acquire them, subject to the principle of prudence. When making a cautious assessment, the following should be taken into account in particular:

  • decreases in the value in use or commercial value of assets, including through depreciation or amortization;
  • only undisputed other operating income and extraordinary income;
  • all other operating expenses and extraordinary losses incurred;
  • reserves for risks known to the enterprise, future losses and the consequences of other events.

The application of the precautionary principle is aimed at obtaining a reliable view of the financial position of the company by limiting the arbitrary assessment of assets and liabilities.

The principle of no offset

As stated in section 7(3) of the Accounting Law, the value of individual assets and liabilities, income and related expenses, and profits and extraordinary losses is determined separately. Accordingly, the value of assets and liabilities of different types, income and expenses, and extraordinary gains and losses should not be offset against each other. This means that when accounting for income or liabilities relating, for example, to one counterparty, each transaction must be reflected as a separate item. In this case, you cannot use summary transactions. The situation is different with events of the same type. In this case, postings can be made in aggregate for a certain period, for example, exchange rate differences.

Principle of reliability

Transactions recorded in the tax books must, of course, be presented in a fair manner to enable a clear and transparent assessment of the financial position of the company concerned.

Specific principles

In addition to the universal and basic principles, there are also specific principles that clarify the above principles, which should be followed by every person conducting accounting. Specific rules include:

  • documentation principle – every economic event that occurs in an organization must be properly documented;
  • principle of completeness – documentation should always be complete;
  • principle of transparency – accounting records must be kept clearly and transparently;
  • principle of timeliness and relevance – the latest available information should always be taken into account;
  • principle of comparability of reporting – financial statements must be kept in Polish and in Polish currency. Both accounting records and financial statements must be maintained in such a way that they can be easily compared.

Accounting in the wFirma.pl system

The wFirma.pl system allows you to keep complete records. To do this, when creating an account, select the KSIĘGI RACHUNKOWE option by selecting the tax accounting type.

You can then use the available standard accounting templates, chart of accounts, advance income tax definitions, or definitions for a balance sheet or income statement.