hello everyone hi welcome to the channel of Wallstreetmojo friends today we are going to learn a concept that is on accounting policies we are going to learn some of the examples and what is the importance that is the significance of the same now first what is accounting policies that is the first and the foremost thing see from the name itself it is very clear that this policies is basically a set of rules that dictate a company’s financial accounting so in this tutorial will go length about the accounting policies and its usefulness of this policies see without much at all let’s get started with the meaning of the policies the first thing that we are going to understand is what are accounting policies what are accounting policies so basically you can say that accounting policies are a set of rules or procedures that have been followed by which a company prepares its financial statement you can say this is the first thing second you may be asked why should we why should a company need an accounting policy see when a company prepares a complex statement or calculated advanced method of accounting it needs some guidelines you can say to follow with guidelines to follow with or for example like accounting policies to choose depreciation method a company needs to follow a specific accounting policy accounting policies may vary company to company but whatever a company does in regards to the accounting policy it should be in accordance with the generally accepted principles or you can say the GAAP the generally accepted accounting principle or you can say IFRS so this policies are basically a structure or you can say a framework for maintaining the quality of the products or services in a company accounting policies are also basically a set of you can see a benchmark you can see a benchmark a set of benchmarks to represent a sound and accurate picture of accounting practices with a company so what is the next thing that we are going to understand is what is the importance or the significance of the accounting policies see to understand the nitty gritty of the accounting policies the first that we need to understand the significance of the accounting policy accounting policies are basically significant for like if some reasons are as follows the first one is you can see for proper framework okay so to articulate the financial affairs of the company it needs to prepare the financial statement and if the financial statement are just prepared without any guidelines there would be no coherence with the same they help find out the coherence between the financial statements accounting policies also offers a solid framework to follow so that the company may comply to the right structure and prepare its financial statements the next is disclosure now it’s important that a company discloses what accounting policies they have been following since accounting standards let’s any item be pre represented in many ways a proper disclosure of the accounting policy is very important the third is basically providing you can say providing advantage to investor to investor see if the company mentioned the accounting policy they used to produce the financial statement it will also help the investors by stating the accounting policy the company basically ensures that they have maintained coherence while producing the financial statements this coherence basically helps the investors to look at the financial statement and compare with the other companies but fourth is like you know the government’s basically can keep a hold on the company’s financial statement since basically all the companies or the companies also needs to keep in mind that they can follow the accounting policies that is made as per the GAAP or you can say IFRS does the government can have a direct holder on the company’s financial statement and government can protect the interest of the investor let’s understand an example an accounting policy see all the financial statement are prepared by the when following specific policies and there are a couple of practical examples of the accounting policies which can help us to understand how the accounting policy has been followed let’s say there is a company let’s say there is a company that follows a gaap okay to recognize the revenues recognizing the revenue over here for the company is very important because it is it positively or negatively impacts the investor for example of accounting policy if a company recognizes its revenue when it doesn’t make any sale it’s not right approach as per the revenue recognition you can say a company cannot recognize its revenue until it i been earned so that doesn’t mean all the revenue would be in cash it can be occur also so in in the case of the credit sales the earning is also real like for example of an accounting policy let’s say there is company T makes credit sales there is company that is T that makes some credit sales and recognises at it as a revenue now two things over here important first and the foremost thing is how the first company T can collect the cash you can see how the company can collect the cash for the credit sales it has made and the second you can say over here in this particular scenario when the revenue is going to be recognized so if a company recognizes a revenue at the time of recording credit sales and if the company does not receive any cash then in that scenario by that point the company would be called as rich in revenue it con it can be called as rich in revenue but poor in cash so accounting policies greatly affects how revenue has been recognized in a company so as we have learned from this particular example and you know there’s a company called fault the recognized they recognizes its automobile segment revenue when all the risk and rewards basically of the ownership are transferred to the customer dealers that is basically or the distributors there and then only they recognize now let’s say the accounting policy example based on R&D that is a research and development this is a example based on research and development case see R&D expenses which are capitalized or which are call expensed see R&D expense can be capitalized also it can be expensed but this is very significant consideration in the financial accounting and the company needs to follow accounting policies that nee needs to be recognized look at the expense or the capitalization but how it would be done see R&D expenses certainly have future benefits now that’s why you can say that our any expense have been treated as the assets rather than the expenses but when a company is expensing R&D it doesn’t know any specific future benefits so that’s why it cannot be capitalized in more cases sometimes when R&D expenses have been and have a specific future benefit it can it can be capitalized but as per the US GAAP you can say one should recognize the R&D expenditures expenses when they are incurred this is really very important when we are talking about US GAAP now see we will see something over here that you know the total R&D expense was 11.6 billion 10 billion and 8.1 billion in 2017 16 and 15 respectively so what we note the apples R&D expenditure was this particular amounts that has been mentioned this is from the notes of the you can say from the nodes of the apples company okay so the next thing that we need to learn is whether it is aggressive with the accounting policies conservative or aggressive see typically the form operates within the periphery of two external or two extremes in regards to the accounting policies either a form follows an aggressive approach or a conservative approach you can see this no matter what approach a company follow it needs to reflect the same in the accounting policy in the way the accounting policies are followed in preparing the financial statement so according to the International Accounting standard that is the IAS 8 the IAS 8 accounting policies are basically conserved and convention rules or procedures that have been followed and even practices that means that the whole framework of the Accounting Standards in preparing the presenting the financial statement of the company that can be called as accounting policies so accounting approach is to use is to use the accounting policy should not be based on a single transaction or event or a condition the accounting policy should be by keeping the big picture in mind and thinking about the preparation of the financial statement and also how this financial statement would be represent to the investor thank you everyone