What is an Accounting Postulate?

An accounting postulate is a key assumption that underlies the practice of accounting. A postulate is derived from common historical practice, and is incorporated into the more formal accounting standards that govern how accounting transactions are recorded and presented. Accounting postulates are generally not stated in the disclosures that accompany a reporting entity’s financial statements.

Characteristics of an Accounting Postulate

The key characteristics of an accounting postulate are as follows:

Fundamental assumptions. Accounting postulates are basic assumptions that are universally accepted as the foundation of accounting processes. They are not derived from empirical evidence but are considered self-evident truths in the field of accounting.
Universally applicable. Postulates are general in nature and are intended to be applied universally across different industries, organizations, and contexts.
Framework for accounting principles. Accounting postulates provide the groundwork for formulating accounting principles, concepts, and standards.
Broad in scope. Postulates are broad and overarching, addressing the overall approach to financial reporting rather than specific technical issues.
Assumption-based. Postulates rely on assumptions about the economic environment, business practices, and financial behavior (e.g., businesses operate as going concerns, monetary units are stable).
Consistent with practical realities. Postulates are based on practical observations of how businesses and economies function, ensuring they remain relevant in real-world scenarios.
Not directly verifiable. Unlike accounting standards, postulates are not directly verifiable or provable. They are accepted as starting points for reasoning in accounting.
Time-tested and stable. Accounting postulates are established over time and tend to remain stable unless there are significant changes in the business environment or accounting practices.

Examples of Accounting Postulates

Examples of accounting postulates are as follows:

Revenue recognition. Revenues are recognized when earned, and expenses are recognized when assets are consumed. This postulate is incorporated into the accrual basis of accounting.
Consistency. Once a business chooses to use a specific accounting method, it should continue using it on a go-forward basis.
Entity. The transactions of a business are to be kept separate from those of its owners, so that the financial results and financial position of the business can be more clearly discerned.
Completeness. Transactions should be recorded when not doing so might alter the decisions made by a reader of a company's financial statements.