Accounting principles are important standards and procedures for recordkeeping and reportingin a business as itensure that the output of accounting, financial reporting, is full, consistent, and comparable. With that, it is vital for every business owner, small or medium enterprise, to have a clear understanding of these principles.
Today, to ensure that accounting principles are well observed, small entity owners rely on the best accounting software for small businessesthey chose as it efficiently records transactions even if they have limited accounting knowledge.
With that, here are the five accounting principles you should know.
This principle states that an entity must record money when it is earned, not when it is received. Similarly, whether or not an item has been paid, it should be recorded when it is incurred.
The matching principle expands on the accrual principle. If an income account and an expense account have a cause and effect relationship, they must be reported in the same accounting period.
Economic Entity Principle
This principle states that the firm is a separate entity from its owners, hence its operations must be recorded separately from the activities of the owner/s. Simply, all transactions between the owners and the business must be meticulously recorded.
This principle states that if an accounting standard’s net impact on the firm is minor, the business may choose not to use it. The materiality threshold is usually set at 5%.However, ignoring a specific standard should not lead to a misleading interpretation of the financial statements.
Going Concern Principle
The belief that the business will continue to function for the foreseeable future is known as a going concern. The value and disclosures of the business’s accounts are affected by reporting under the going concern principle.
If you still have questions regarding these principles and need professional guidance, you can contact KIPPIN today to attend to your inquiries and help your small business with its finance-related tasks. They can also help you choose the small business accounting software best suits your company.
For more information, you may visit KIPPIN.