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As a business owner in Australia, adhering to basic accounting principles is crucial for the success of your bookkeeping. In this expert guide, we’ll walk you through the ten vital principles that should govern your accounting practices for your Australian business.
Record and track your business’s financial transactions like a pro
1
Economic Entity Principle
The economic entity principle requires that your business is treated as a separate entity from you as the owner. This means that any transactions, assets, or resources belonging to your business should not be treated as your personal belongings. This principle is important for Australian businesses because it helps ensure that the business is compliant with taxation laws.
2
Going Concern Principle
The going concern principle states that you should prepare your accounts with the assumption that your business will continue to exist for a long time. This is particularly important in Australia because the Australian Taxation Office requires businesses to demonstrate their ability to continue operating for the foreseeable future.
3
Full Disclosure Principle
The full disclosure principle requires that your accounting records provide all relevant information that would help readers understand the financial position of your business. This is especially important in Australia because the Australian Securities and Investments Commission requires companies to provide a range of financial disclosures to ensure that investors are fully informed.
4
Matching Principle
The matching principle requires that for every debit entry you make, there must be a corresponding credit entry, and vice versa. This ensures that your accounts are accurate and complete. This principle is particularly important for Australian businesses because the Australian Taxation Office requires businesses to keep accurate records of all financial transactions.
5
Accrual Principle
Under the accrual principle, you should record all business transactions as soon as they occur, regardless of whether you receive or make payments for them immediately or in the future. This is important for Australian businesses because the Australian Taxation Office requires businesses to use the accrual method for tax purposes.
6
Revenue Recognition Principle
The revenue recognition principle requires that you should only record business income for transactions that have occurred, rather than based on speculations or promises. This means that you should only record transactions when there has been an exchange of value. This principle is particularly important in Australia because the Australian Securities and Investments Commission requires companies to report revenue in a specific way.
7
Time Period Principle
The time period principle requires that your accounting reports should cover a standard period, such as a year, month, or week. This helps you track your business’s financial progress over time. This principle is important for Australian businesses because the Australian Taxation Office requires businesses to report their financial information annually.
8
Monetary Unit Principle
The monetary unit principle requires that you can only record transactions that have a monetary value. This means that you cannot record transactions that do not have a clear financial value. This principle is important for Australian businesses because the Australian Taxation Office requires businesses to report their financial information in Australian dollars.
9
Conservatism Principle
The consistency principle requires that you should be consistent with the accounting methods you adopt. This means that you cannot switch between different accounting methods arbitrarily. This principle is important for Australian businesses because the Australian Taxation Office requires businesses to use consistent accounting methods from year to year.
10
Consistency Principle
The conservatism principle requires that you should only record assets and liabilities when you’re sure that transactions would occur, rather than based on speculations. This helps ensure that your accounting records are accurate and reliable. This principle is important for Australian businesses because the Australian Securities and Investments Commission requires companies to report their financial information in a conservative manner.
By adhering to these accounting principles, you can ensure that your business’s financial records are accurate, compliant with regulations, and helpful for making informed business decisions.
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