What are accounting principles? 7 Basic Accounting Principles 2025

What are accounting principles? Basic accounting principles according to Vietnamese Accounting Standards. Examples of 7 basic accounting principles such as: original price, appropriateness…

I. Legal basis

• Vietnamese Accounting Standards VAS 01 – General standards according to Decision 165/2002/QD-BTC dated December 31, 2002 of the Minister of Finance;
• Accounting Law No. 88/2015/QH13 issued on November 20, 2015.

II. What are accounting principles? The significance of applying accounting principles

1. What are accounting principles?

Accounting principles are basic rules and guidelines that every accountant needs to apply in their work to ensure the accuracy, reliability and transparency of financial information. 

This accounting principle concept is recognized as a common standard, a guideline for evaluating, classifying, synthesizing, recording and reporting information on the production and business activities of enterprises.

In the promulgated Vietnamese accounting standards system, there is accounting standard VAS No. 01 (general standard) which stipulates the following basic accounting principles:

1. Accrual basis principle;
2. Principle of continuous operation;
3. Cost principle;
4. Key Principles;
5. Principle of conformity;
6. Principle of prudence;
7. Consistency principle.

2. The significance of applying accounting principles

• Help businesses ensure honesty, prevent fraud, and increase transparency in financial reporting;
• It is a platform that helps investors compare the financial situation between businesses in the most accurate way, thereby making appropriate and effective investment decisions.

III. 7 basic accounting principles according to the Vietnamese accounting standards system

1. Accrual basis principle

• All economic and financial transactions of an enterprise related to assets, liabilities, equity, revenue, and expenses must be recorded in the accounting books at the time of occurrence, not based on the time of actual receipt or actual expenditure or cash equivalents; 
• Financial statements reflect the financial situation of a business in the past, present and future.

For example: 

On April 10, Company A sold a batch of goods to Company B according to invoice No. 260 dated April 10, Company B inspected the goods and accepted payment. However, on April 20, Company B made payment to Company A. According to the accrual basis principle, this sales transaction is recorded as revenue on April 10, Company B.

2. Principle of continuous operation

• Accounting is undertaken on the assumption that the business will continue to operate as a going concern and will continue to operate as normal for the foreseeable future;
• In cases where the actual situation differs from the going concern assumption, the financial statements must be prepared on a different basis and the enterprise must explain the basis used to prepare the financial statements.

>> See more: Financial reporting service – From 1,000,000 VND.

3. Original price principle

• Assets (materials, goods, debts, etc.) must be recorded and reflected at their original cost; 
• The original cost of an asset is recorded at the amount of cash or cash equivalents that the enterprise has paid, must pay or is calculated at the fair value of that asset at the time of recording;
• Accountants are not allowed to change or adjust the original cost of assets unless otherwise provided in specific accounting standards.

For example:

In May/N, company A purchased a welding machine with a price excluding value added tax (VAT) of 200,000,000 VND, VAT 10%, total payment price is 220,000,000 VND. The cost of transportation, loading and unloading to warehouse is 1,100,000 VND (including VAT 10%). 

According to the original price principle, the original price of the asset = 200,000,000 + 1,000,000 = 201,000,000 VND.

By October, the market price of this machine increased by 30%, however, the value recorded in the books was still at the value at the time of purchase, the accountant did not adjust according to the increased value on the market.

>> See more: How to identify and calculate the original price of tangible fixed assets.

4. Key principles

• Focus on important factors and cost items that determine the nature and content of economic events;
• Allows to ignore or simplify unimportant events and transactions that do not affect the nature and content of the economic transactions that arise;
• Helps to make recording accounting information simpler and more effective while still ensuring the honesty and objectivity of accounting information.

5. Principle of conformity

• Provide guidance to help businesses determine the portion of expenses corresponding to the revenue realized. 
• Revenue and expense recognition must match;
• When recording a revenue, the accountant must record a corresponding expense related to generating that revenue;
• This principle is mainly applied in relation to sales operations. When recording revenue, businesses need to identify and record the portion of expenses corresponding to that revenue.

For example:

Company A sells a batch of goods to company B according to VAT invoice No. 245 dated May 13, 2016:

• The pre-tax value is 100,000,000 VND;
• VAT rate 10%;
• Total payment is 110,000,000 VND; 
• Company B has checked the goods and accepted payment; 
• Cost of goods: 80,000,000 VND.

According to the matching principle, the revenue and expenses of company A should be recorded as follows:

• Company A recorded revenue of VND 100,000,000 and recorded the corresponding cost of goods sold of VND 80,000,000;
• Provisions: 
• Revenue recognition:

Debit account 131: 110,000,000 VND;

Credit account 511: 100,000,000 VND;

Credit account 3331: 10,000,000 VND.

• Record cost of goods sold corresponding to revenue:

Debit account 632: 80,000,000 VND;

Account 156: 80,000,000 VND.

>> See more: Sales accounting services for businesses.

6. Principle of prudence

The prudence principle stems from the requirement for accuracy and reliability of accounting information. An accounting information system that strictly adheres to the prudence principle will be more reliable, helping investors and business managers make smarter and more effective decisions.

•  According to the prudence principle, accountants are allowed to: 
  • Record an increase in expenses or a decrease in assets when there is evidence of the possibility of expenses arising;
  • Revenue or increase in capital or assets is recognized only when there is solid evidence of the possibility of obtaining economic benefits.
• The precautionary principle states: 
  • A reserve must be established but not too large;
  • Do not overestimate the value of assets and income;
  • Do not underestimate the value of liabilities and expenses;
  • Revenue and income are only recognized when there is solid evidence of the possibility of obtaining economic benefits; 
  • Expenses should be recognized when there is evidence of their likelihood of occurrence.

For example:

The principle of prudence is often applied by accountants: 

• Provisions for asset losses (financial investments, provisions for bad debts, provisions for inventory price reduction); 
• Revaluation of original price of fixed assets; 
• Advance payments (advance payments for repair costs, warranty costs)…

See also:

>> Liquidation of fixed assets and revaluation of fixed assets;

>> How to identify and calculate the original price of tangible fixed assets.

7. Principle of consistency

• The consistency principle requires businesses to apply and implement accounting concepts, principles, standards, methods, etc. consistently at least throughout one accounting year;
• In case there are changes in the selected accounting policies and methods, the enterprise must explain the reasons and impacts of such changes in the financial statement notes;
• Applying the principle of consistency will ensure that accounting data and information are honest and objective, while ensuring consistency and comparability of indicators between accounting periods.

For example: 

The consistency principle that businesses often apply:

• Enterprise A applies a single costing method for all types of inventory. If there is any change, it must be explained in the financial statement notes;
• Enterprise B applies the straight-line depreciation method for asset E for at least one accounting year. If it wants to change the depreciation method of the asset, it must explain the reason and only change if it is approved by the competent authority.

See also:

>> How to account for and calculate depreciation of used fixed assets;

>> Can unused fixed assets be depreciated?

IV. Some questions related to the basic principles of accounting

1. Company A was established on February 1, 2016 and is applying the first-in, first-out (FIFO) method of calculating inventory costs. On November 12, 2016, because the FIFO method is not suitable, the company’s accountant wants to switch to the weighted average method. What should the company’s accountant do to change the method of calculating inventory costs?

According to the consistency principle, company A needs to apply a consistent method of calculating inventory prices for at least one fiscal year. Therefore:

• If company A is applying the FIFO method for fiscal year N, it should be applied throughout year N; 
• In year N+1, accountants can switch to applying the weighted average method;
• When making changes, accountants need to explain in the notes to the financial statements. Or the company’s accountant can revise the books and the inventory valuation method from the beginning of year N. From there, the company can apply the inventory valuation method using the weighted average method for fiscal year N.

>> See more: Methods of calculating warehouse prices.

2. On June 12, Company A transferred a tangible fixed asset used in the sales department to Company C, the original price was 100,000,000 VND, depreciated 50,000,000 VND. The selling price excluding VAT was 60,000,000 VND, VAT rate 10%. Company C paid via bank. In the above example, when accounting, which accounting principle should be applied?

When company A sells fixed assets, the company’s accountant needs to record in the accounting books as follows:

• Revenue recognition:

Debit account 112: 66,000,000 VND;

Credit account 711: 60,000,000 VND;

Credit account 3331: 6,000,000 VND.

• Cost recognition:

Debit account 811: 50,000,000 VND;

Debit account 214: 50,000,000 VND;

Credit account 211: 100,000,000 VND.

Thus, it can be seen that, in order to properly record in the accounting books, the company’s accountant needs to apply the original price principle when recording the reduction in the value of fixed assets, and apply the matching principle when determining and recording the cost portion corresponding to the revenue obtained from the sale of fixed assets.

>> See more: How to account for liquidation – sale of fixed assets.