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The principle of stability in the use of accounting

Abstract: Accounting , also known as the principle of the stability of the principle of prudence, asking people in the accounting treatment should be kept reasonable caution, as selection of a non-inflated profits and exaggerated the accounting treatment of equity . This article on how to apply the principle of prudence and its Application in China were of effects and conditions. Key words: sound principles; specific application; Note First, the meaning of the principle of sound prudence principle known as the precautionary principle. It is the economic activities for the uncertainties, requiring people to remain cautious on the accounting approach, to fully estimate the risks and losses that may occur, requiring accountants or accounting to certain economic and business matters of the existence of different accounting processing methods and procedures are available, in line with the accounting policies of the premise, as far as possible use a non-inflated profits and inflated equity accounting methods and accounting procedures, requiring a reasonable accounting of losses and expenses that may occur . Application of the principle from the robustness point of view, accounting, accounting to some extent, operational risk, reflecting the risks of providing information, help enterprises to make accurate business decisions, help to protect the interests of creditors, enhance their competitiveness in the market will conservatism principle of accounting provisions of the general principles of practical significance. Second, the principle of sound management in our specific application of the accounting (a) of the inventory lower of cost and net realizable value method proper selection inventory valuation method, for a true reflection of the value of inventory is very important. According to China Accordingly the sale and consumption of inventory valuation can cost close to current levels, and match income with the current ratio, contribute to more objectively reflect the real conditions of business operating results, particularly in the case of price increases, can enterprises due to currency depreciation will not be expressed as inflated profits. The inventory cost and net realizable value using the lower of pricing, mainly in the developed market economy, the market system is perfect, business management the case of very high quality used. With the development of the socialist market economy, corporate inventory valuation method is limited to use LIFO, we can not truly reflect the full value of inventory, it is impossible to truly move toward the enterprise market, the internal mechanism. From this point, the businesses of their inventory cost and net realizable value using the lower of pricing will be inevitable. Cost and net realizable value is the lower of historical cost in the use of the Modification. In order to reflect the stock's value steady, at net realizable value instead of historical cost as the value of inventory, net realizable value of inventory below cost and loss of form to be recognized as current expenses. Doing so, avoid such losses will be postponed to a later period, also helped the financial position and operating results during the relative accuracy. In China, some industries have actually adopted the lower of cost and net realizable value method pricing. For example: accounting requirements of commercial enterprises, enterprises can prepare the establishment of commodity price-cutting, to account for business-to-stock merchandise price cuts losses that may occur, and extracted from the cost price cuts losses; foreign-invested enterprises accounting system also provides for companies to extract cash inventories preparation. (b) the choice of depreciation method of fixed assets in the price level is relatively unstable conditions, how to select the depreciation method based on the actual business, making it both robust and dynamic, is enterprises are facing another problem. Of this stage of national financial the ability, most industries are using straight-line depreciation method, which makes a relatively long recovery period in fixed assets,[link widoczny dla zalogowanych], the stability does not meet the accounting principles, income and expenses matching principle, without considering the economic life of assets, price changes and the technological revolution and other factors, the amount of depreciation in each accounting period are equal, resulting in inadequate compensation costs of wear and tear of assets, business equipment, very backward, enterprises are faced with the physical inability to update grim reality. Based on the economic attributes of fixed assets, fixed assets, the performance is inversely proportional to their use of time, it should speed up the rate of corporate compensation costs, accelerate the pace of technology and equipment updated to enhance their self-development. Accelerated depreciation method which is very necessary, especially in conditions of rising prices, it can recover part of earlier investment, reducing inflation and loss of time value of money took place, realize the value of fixed assets, compensation and physical compensation for unity. Accelerated depreciation method offers several advantages: First, it can implement the principle of matching revenues and expenses. Second, a balanced use of national assets, the cost of each period. Third, you can enable enterprises to achieve the financial interests of delayed payment of income tax, enhance stamina. I believe that with China's further development of socialist market economy, accelerated depreciation method will be widely used. (c) accounting for bad debts of deduction item listed accounts, the provisions of the financial system of commercial enterprises: businesses can bad debt reserve accrued monthly, at the end of the year and then at the end of the accounts receivable balance 3 ‰ ~ 5 ‰ liquidation costs included in the current . Not bad debt provision bad debt losses incurred by foreign enterprises, and truly included in current expenses. In this way, we can guarantee in the event of bad debts, without causing production difficulties in operating and financial revenues and expenditures to remove that risk. China accounted for using the allowance method bad debt losses, in the allowance method, how to correctly estimate each accounting period the number of bad debts, is the key to this approach. Currently, there are sales percentage method, aging analysis, and the percentage of accounts receivable balance method. Accounts receivable balance as a percentage method to apply it more easily, so the main use of this method of provision for bad debts, provision for a ratio of 3 ‰ ~ 5 ‰. (d) the use of short-term investments provisions of the existing accounting system, short-term investments accounted for using the cost method, of course, of the investment securities price less volatile, or short-term investments accounted for the proportion of less liquid assets, the use of this valuation method will not corporate financial position and operating results of the report have a significant impact. However, market volatility, use the cost method will no longer be able to truly reflect the situation of business investment, particularly in the cost and market price of securities may be very different. Therefore, every period, lower than the investment cost for the securities market, you need to be reflected in the financial statements, and short-term investment allowance for diminution in value as the subjects listed in the balance sheet under short-term investments, offset against the carrying amount of short-term investments . This is in line with the principle of stability, and consistent with the matching principle. (v) liabilities reflected or liability is caused by a particular economic activities, the future may be something unexpected happens, and thus to the enterprise responsible for the potential settlement of the debt . At present, most of the business or liabilities are not fully reflected. However, according to the requirements of sound principles, the accounting report should provide the fullest possible accounting information, especially about possible losses. Reflect, in combination, or choose a different type of contingent liability method. For direct or contingent liabilities of enterprises (referring to outstanding claims, pending litigation, tax dispute) should be dedicated liabilities after. For indirect or contingent liabilities (ie discounted notes receivable, accounts receivable Dijie, accommodation and other debt instruments secured endorsement), generally do not set specific subjects, but to note the size of the form indicate the amount of the business. (f) financial analysis of the use of in the financial analysis process, financial analysis is often the same calculation methods, which can lead to different results, reflecting different economic information. As a corporate financial statement users, corporate accounting information in the analysis should hold steady attitude. Its use mainly in the following areas: 1. The use of short-term liquidity analysis. (1) Current ratio measures the company's current assets to current liabilities, the level of protection. However, in current assets is often the case in practice some items can not be transformed into cash quickly, from the accounting point of view, misappropriation of public funds, or some bad debts, bad debts through other receivables, long-term receivables and other subjects. From the sound principle, should be targets in the calculation of liquidity ratio, or under specific circumstances to deduct a certain percentage of deduction. In addition, current liabilities of the balance sheet should be added will have the best possible can be expected liabilities. Such as product quality guarantee, discounted notes receivable, litigation and other compensation. (2) Quick ratio can be used to measure corporate liquidity in the current ability to pay current liabilities. Conservative method of calculating the quick ratio: liquid assets = capital + short term money market securities + Accounts receivable, net, the majority of corporate financial statements of the United States using this method. Among them, the monetary funds of funds in other currencies, such as other towns without deposits, net of accounts receivable will have long-term receivables. Conservative in the amount of liquid assets, net of prepaid accounts and other large liquid assets, the accounting figures of these items in the possession of liquid assets for a large proportion, at the same time is difficult to be realized at any. 2. Analysis of the use of long-term solvency. Long-term solvency indicator is the debt ratio. Reflect the ratio of corporate leverage, measured by the extent of enterprises to protect the interests of creditors. In the specific analysis should pay attention to the following two aspects: (1) Minority interests, will be a non-wholly owned subsidiary of the financial statements of equity after the merger, will have to add a minority interest in subsidiary accounts to reflect the minority equity interests of other shareholders. In Western countries, some companies think that in the calculation of debt ratios: As a minority stake in the company (the owner of the parent company in terms of) a piece of inflated assets, as reflected in the numerator and denominator correspond to the content, you must take a few options included in the liabilities. (2) redeemable preference shares, increase the scope for the use of corporate funds to reduce market interest rate movements caused by the risk mitigation fund companies to build tension when such preference shares and ordinary shares and preference shares on the general differ , a strong balance the interests of the best projects are listed in the calculation.