Distinguish between a postulate and a principle as they are used in ARS 1 and ARS 3. Identify the major categories of each that are included in these two studies.
What will be an ideal response?
ANSWER:
Postulates are basic assumptions concerning the business environment. They cannot be verified, but serve as a basis for inference and a foundation for deducing propositions. ARS 1 identified and defined the basic postulates of accounting. These postulates were of two different types. Groups A and B were made up of general, descriptive postulates that were derived from the economic and political environments. The second category is value judgments.
The postulates themselves are in three groups: the environmental group, those stemming from accounting itself, and the imperatives, with the imperatives being the key group. The imperatives correspond to objectives that should be striven for. The key imperative postulate appears to be stability of the monetary unit.
Principles are general approaches utilized in the recognition and measurement of accounting events. Most of the principles listed in ARS 3 were reasoned from the postulates of ARS 1. These principles are divided into two main types: input-oriented principles and output-oriented principles. Input-oriented principles are broad rules that guide the accounting function and include general underlying rules of operation and constraining principles. Output-oriented principles involve certain qualities or characteristics that financial statements should possess if the input-oriented principles are appropriately executed.
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