Accounting Concepts Definitions Part : 5 ( Timeliness Concept and Neutrality Concept )

    Accounting Concepts Definitions Part : 5

accounting concepts definition

Timeliness and Neutrality

Along the way in accounting all the concepts are interrelated and if you read one and even without the concept of others leave them, may be you are calling for trouble. So, once you are reading one, ensure that you are reading all of them in full.

In this portion we are going to cover the portions regarding timeliness and neutrality.

Timeliness states:

“The accounting information should be related to the relevant time and it should be all within the time frame related to the present year. The information should be converted to fit the current time frame if it is not fit to the present time frame.”

Example:

  1. Revenue from the next five years (estimated) is generated and shown as below:

Year 1                $25000

Year 2                $30000

Year 3                $15000

Year 4                $10000

Year 5                $35000

The amounts should be discounted to fit the present time frame (There is a separate article about this named “Time value of money”).

Without the amounts the balance sheet of an initiating business will not be reflecting the actual amount. If these amounts are related to a new project the business is going to undertake, then it is of utmost importance to convert them and to show in the notes section.

  1. There is a change in accounting policy (for example- depreciation policy) and the change has effects on previous years’ balances, so, without proper figures disclosed or, proper figures being known it is not possible nor, permitted to show effects on the previous years.

So, the amounts related to the previous years are absolute necessities to find the amounts which will be the results from the calculations done based on the balances regarding the changes which will come as per policy change.

 

Neutrality states:

“The accounting information should be free from all the bias and should completely reflect the picture of the entity according to the information provided.”

Now, as per the definition bias means:

“Any effort or, idea to manipulate information or, the source or, the related document to design the outcomes of an accounting procedure. The process to decide rates in higher forms to make depreciation process quick or, to deduct the tax rate, such an act is void from the rules.”

This process of biasing is called Creative Accounting.

One thought on “Accounting Concepts Definitions Part : 5 ( Timeliness Concept and Neutrality Concept )

  • lucile says:

    It seems like you really fully understand a good deal related to this topic and this exhibits by means of this excellent post, keep posting about accounting concepts. Thank you ,Jami

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