Some essential principles guide the preparation of accounts, and when you’re adding your bookkeeping entries, you should ensure you adhere to these following principles:
1. Economic Entity Principle
This principle means your business should appear separate from its owner. In simpler terms, your business should appear a separate individual and any monies, assets or resources belonging to your business don’t necessarily belong to you.
2. Going Concern Principle
You should prepare your accounts with the assumption that your business would continue to exist for a very long time.
3. Full Disclosure Principle
Your account should contain all relevant information that would help readers fully understand it.
4. Matching Principle
If you’re using accrual accounting system for every debit entry you make, you must make a corresponding credit entry and vice versa.
5. Accrual Principle
You should always record your business transactions as soon as they occur whether you receive or make payments for them now or plan to do so in the future. This helps show a true picture of what happened during each accounting period.
6. Revenue Recognition Principle
You are not to record business income based on speculations or promises; you should only record transactions that have occurred. This means you should only record transactions when there has been an exchange of value.
7. Time Period Principle
The accounting reports should be prepared to cover a standard period that may be a year, month or week.
8. Monetary Unit Principle
You can only record transactions you can place a monetary value on.
9. Consistency Principle
You need to be consistent with the accounting methods you adopt. You cannot use the double entry system today and adopt the single entry system of bookkeeping tomorrow; your methods have to be consistent.
10. Conservatism Principle
This is almost the same thing as the revenue recognition principle only that this time, it has to do with your assets and liabilities; you should only record assets and liabilities when you’re sure that transactions would occur and not while speculating.
If you fully adhere to these accounting principles, you shall record and your business accounting transactions like a Pro.
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