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Reliability

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Transcript

Hi, this is Justin from fit numbers. Okay, so the next concept that we're going to talk about in accounting is the reliability principle. This is about understanding that in order to record transactions within accounting terms that needs to be reliably measured. So in this example, if you had an invoice This is a relatively reliable form of measurement that to be recorded within your accounting records. If we just had to guess what the amount would be, it would not be the most reliable method of how you would actually quote the transaction. Whoever the many cases we're having a guest have a particular amount is okay.

It's when it's for internal management purposes, and we have to estimate how much our cost approach is going to be. If it was purely to determine the month end results for internal management purposes. This may be a reliable method of actually determining What your what your profit is going to be. However, if this was actually going to an external authority such as a bank as the following year in recounts, it probably wouldn't be wouldn't be such a good idea. However, if you were issued an invoice that was calculated from your suppliers billing system and sent to you, this is much more reliable form of transaction. So the principle of reliability you're going to see throughout the entire course, is of how we actually record transactions.

Another example is when you're calculating an employee's intimately felons, if we're actually just guess, what we think are leave entitlements Ah, this is not the most reliable form of estimating how to work at an amount and therefore shouldn't be recorded within the books. However, if we were to actually work out and calculate an accurate model based on looking at the individual employee salaries, how many days they're actually in total, and actually working out the calculations reliably, this would be an acceptable form of how to actually calculate the transaction. So let's read this quote. We're going to be looking at reliability and in the next section we'll be talking about the relevance principle.

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