Whether you are an accountant, business owner or just someone who needs to record financial information, knowing the five basic accounting principles is essential. They ensure consistent accounting practices and are the basis for all financial statements and reporting. While each country may have its own accounting rules and regulations like UK GAAP, US GAAP or IFRS, these principles remain the same worldwide.
What Are the 5 Basic Accounting Principles?
Generally Accepted Accounting Principles (GAAP) are the set of standards and guidelines that all publicly-traded companies must follow to be accurate, complete and transparent with investors. While the details of these accounting principles are complicated, there are some that all businesses should be aware of.
1. Matching Principle – states that expenses must be matched with their respective revenues in the same period they are recognized, irrespective of the amount of cash inflow or outflow account scottsdale. For example, commissions paid to salesmen and cost of goods sold are directly related to sales revenue whereas rent, interest, depreciation accruing with the passage of time and stock lost due to fire are not. This is also known as the accrual concept.
2. Full Disclosure Principle – requires that all the relevant facts and information be disclosed in your financial statements. This prevents companies from hiding important financial data that could impact a decision about their financial status or future prospects.
Accounting is a complex field and while it can be confusing, there are many accounting tools that can simplify the process for non-accountants. For example, online accounting solutions like FreshBooks are designed with the non-accountant in mind and offer simple invoicing and expense tracking. They can even help you create custom, professional invoices in less than a minute and enable you to upload receipt photos for better expense reporting.