BUSINESS ACCOUNTING: THE 10 PRINCIPLES TO KNOW
BUSINESS ACCOUNTING: THE 10 PRINCIPLES TO KNOW. Accounting includes all the processes through which the financial flows (expenses and revenues) of a company are recorded. Whether it is a private or public company, and whatever the field of activity, this exercise is of paramount importance. It complies with legal provisions and provides an overview of the company’s financial health.
The going concern rule
The first principle to know is that which implies that your company is supposed to continue its activities without interruption. In other words, with this rule, any hypothesis of cessation of activity (total or partial) is not valid when presenting the balance sheet. The goal here is to ensure that the company will remain operational, even beyond the closing date of the current financial year.
The principle of independence of exercises
The stated principle stipulates that you must link the accounting movements to the financial year concerned (period during which they are established). You just have to understand that operations and periods are independent of each other.
The historical cost accounting principle
If your company acquires an accessory, it is recorded under the purchase price on its date of entry into the company. The stated principle implies that when you present the balance sheet, you should not reassess the value of this equipment. And this, even if the price has experienced a real increase over time.
The no-compensation rule
In other words, this rule prohibits the merging of a product and an expense on the balance sheet even if they are closely related. However, this principle is subject to a few exceptions and therefore, do not hesitate to contact the experts in the field who can better guide you.
The precautionary rule
It should be made clear from the outset that the rule of prudence is one of the most important principles in business accounting. Indeed, its objective is to anticipate losses (probable or certain) based essentially on prudent assessments.
The right information rule
The stated rule stipulates that the information that appears in your accounts must facilitate understanding for readers of financial documents.
As a reminder, this principle is part of the logic of the compliance of the balance sheet of each company with European and international standards. It is consistent with the rule of relative importance and requires managers to be sincere when providing information.
The principle of pre-eminence of reality over appearance
It should be noted that this rule aims for greater transparency when presenting the operations carried out by the company. The principle of pre-eminence of reality over appearance stipulates that substance takes precedence and must take precedence over form.
They can be complex to put into practice and for this, you can turn to professionals to assist you effectively.