Creative Accounting: The Accounting Principles Of A Business

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According to the creative accounting principle, the accounting concepts still permit flexible choices as follow: First, historic cost concept displays all values based on historical costs in the financial statements. However, market values (price levels of assets) change rapidly over a period that when the accountants calculate the assets of a business, the current values may distort. Therefore, in some cases, revaluations are permitted for long-term assets in order to make the accounting information more relevant. Second, while prudence concept only recognize an asset at a value that is lower than or equal to the amount which is expected to recover from its sale, so as to ensure the amount of the asset does not overestimate. Conversely, in order to avoid underestimation, the amount of liabilities should not be present below than the value that is likely to be paid in the future. The use of creative accounting techniques which benefit a company to choose a better choice of accounting method in the preparation of financial statements. As a result, the company can achieve a profitab...

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