There are some basic accounting principles accepted by GAAP (Generally accepted accounting principles).
Accounting is based on this principles and violation of those principles leads to inaccurate result of business.
Here is brief overview of accounting principles as per GAAP:
It means that assets of business are required to be recorded at cost value. Example: Cost of land is $100000 but market value of land is $400000. In this situation, we will record land at $100000 in financial statements.
It means transactions which can be measured in money are only recorded in accounts. Example: efficiency of employees are useful in growth of business but it can't be measured in money. So it will not be included in accounting. Other assumption is that inflation is ignored in accounting.
As per this principle, owner of business and business should be considered as separate entity. That's why capital invested by proprietor or partner is shown as internal liability.
As per this assumption, accounts are written for specific time period. (One year). Year can be start from January or from April.
As per this principle, revenue should be matched with expenses. Example: Business sale for quarter is $200000. We will consider expense incurred to earn that revenue while calculating profit for that quarter. It is not relevant that expenses are paid or payable. This is called matching concept.
As per this principle, it is assumed that there is no intention of winding up of business and business will be continued for long period.
As per this principle, expected future income or gain should not be recognized but estimated future losses or expenses should be recognized in accounting.