Knowledge BaseBasic Accounting Principles | Every Business owner must Know

September 3, 2019by J.Smith0

Accounting is all about benefits and losses in the company and transaction-related payments. It also keeps the records of all imports and exports in the business. There are professionals who work in the accounting field and have a master’s degree in this field. Small businesses have a single person who kept or registered the records related to accounting. But large businesses have an accounting department. In which more than one person is working, who supplies or provides information to the manager. Who guides the company’s employees, investors who invest in that company, or to the government who decide how much tax has to be collected from the company. 

Accounting Principles and Guidelines

Accounting principles and guidelines are the same for everyone. And everyone should follow them if each company works in the same parameters. So, it will be easy to work and cooperate between companies and work done in a smooth way. 

Accrual Principles

Every record should keep at that time when it occurs. Because after that when there will be over transaction or cash flow issue. Everything will be massive and very confusing to understand. It is very necessary to maintain the accounting records of the business in the manner and not to be unfair in any way.

Revenue Principles

It is also called a Realization Principle. This states that revenue is earned when the sale is made, which is typically good when goods and services are provided. A basic component of the Revenue Principle. When it comes to the sale of goods, is that revenue is earned when legal ownership of goods passes from seller to buyer. Note that the revenue is not earned when you collect cash or something.

Time Period Principles

There is an accounting period in that period of time company parties like shareholders, creditors, investors, etc. They need daily reports about business-related accounting of a specific interval of time for understanding the business performance. And also what are the new changes to do to increase business performance?

The performance of the period is measure by matching the cost with revenue. So, the periodical report shows that what is the difference in the cost we invest in the business. And what revenue and profit the company gets. These rules and guidelines that your business must follow when preparing financial statements. These principles help to protect business owners, consumers, investors from fraud. There will measure of consistency in the accounting reports among all businesses. In order to work simultaneously with their accountants, business owners also know about the accounting rules.

Economic Entity Principles

A business owner should keep their personal transactions separate from the business transactions. The accountant says to keep the personal transactions separate from the company related transactions. Because it makes their job easy but doesn’t make their work more complicated or messy. If the company doesn’t keep the record of its expenses. As a result, the company’s net income will be affected. And its expense compared on the basis of its income. This type of accounting fraud creates an issue that how much money companies invest depends on their income. Because before that they don’t keep the record of their expenses. In reality, that company gets loose, or that losing financial growth. So, it is a must to keep all the records related expenses or other records. To save yourself from all these frauds should follow these rules or guidelines related to accounting.

Cost Principle

The cost principle in accounting says that the cost will not change at financial reporting. If you buy something in July then you have to pay the amount as same as that time it was. It doesn’t matter if the price of the product changes now. It means it doesn’t matter that the market value of that asset is a change or not. The accountant will report that asset at the same amount in which it obtains. Under the accounting principles company need to disclose all the information related to finance. By this principle, stakeholders and investors are not misled by any financial report. They also get to know all the rules related to accounting. So they are also not able to do any cheat or misled to company.

According to the principle, revenue can be recorded without it actually being received. Revenue should be recorded when it will be realized and when the company earned it.

Revenues are realized when companies import or export goods in cash. If from company side goods are delivered so, the revenue is realized. But revenue is not recorded until the goods or products are not received to the customer. The amount will be mentioned on the transaction bill. So, it will not be recorded until the product was not received by the customer.  

Some companies take the revenue at production time because that product will take so much time in manufacturing. This is very common in long term manufacture or construction. The payment in these cases takes a different level of job completion.

All the expenses should be matched and recorded to the revenue or profit. It will be unpleasant. If there is some mismatched. Financial/Accounting information is not free. The company spends millions every year on gathering or organizing accounting information.

Why do you have to pay Tax?

15th April which is known as Tax Day. We should pay taxes. Everyone who is in jobs has to pay tax according to there salary percentages. The money which the government used to do works are comes from the taxes which we paid. So, we all have to pay taxes to develop our country.

I hope you’ll have your answer to this query. If still confused or need further information then contact our QuickBooks support number and discuss it to a certified accountant.

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