1. Recognition Principle
Recognition is the process of capturing an item for inclusion in the financial statements (Statement of Financial Position or Statement of Comprehensive Income). An item is recognized only if it meets the definition of an asset, liability, equity, income, or expense.
Recognition Criteria:
Relevance: The information is capable of making a difference in decision-making.
Faithful Representation: The item can be measured reliably and represents the economic phenomenon it purports to represent.
2. Derecognition Principle
Derecognition is the removal of all or part of a recognized asset or liability from an entitys Statement of Financial Position.
For Assets: This typically occurs when the entity loses control of the asset (e.g., it is sold, destroyed, or the legal rights expire).
For Liabilities: This occurs when the obligation is extinguished (e.g., it is paid, canceled, or expires).
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