Basic accounting principles and guidelines
As in many other industries, the accounting industry dictates that its members all strive to adhere to certain principles and, thereby, provide a similarly high level of service. There are a number of professions such as the medical, law and accounting professions that deal with the intimate aspects of people’s lives. In order for these professions to function correctly, it is vital that the public feel confident in the profession as a whole.
This set of basic accounting principles and guidelines has been created for accountants to follow. While there is no definitive list of accounting principles, members of the industry have come to a general consensus regarding which accounting principles will encourage a uniform level of quality amongst accounting professionals. In fact, during World Accounting Week (an annual event organised by the International Federation of Accountants) this year, there was a forum discussion regarding basic accounting principles and their application.
QuickBooks accounting systems is designed to give accountants and small business owners the tools necessary to adhere to the generally accepted accounting principles of the industry. Peruse our selection of accounting software solutions for more information on our individual products.
What are the basic accounting principles and guidelines?
The generally accepted accounting principles (GAAP) are a useful tool to be used by accountants worldwide. While accountants are not legally bound by GAAP (they are, however, bound by certain other accounting laws), they are able to refer back to these principles to ensure that they are providing the correct level of service.
GAAP is considered to include three sets of rules:
- The basic accounting principles – These accounting principles and guidelines form the basis from which more complex and detailed rules are created.
- The rules set out by the Financial Accounting Standards Board (FASB) – These are in-depth rules and regulations that dictate accounting policy in greater detail than the basic accounting principles.
- Generally accepted industry practices – These are the standard accounting principles that are followed industry wide.
Companies that make their financial documents available to the public are obligated to adhere to the GAAP during the preparation of these documents. Below are five categories of accounting principles that South African accountants follow.
- Identification accounting principles
In order for an accountant to accurately record the financial transactions of an entity, the entity’s physical parameters must be identified. The entity is usually a business or corporation, and identification separates it as a financial entity from its owners, employees, clients, affiliated groups, shareholders and any other parties that may be connected to the business.
- Significance accounting principles
In order for accounting to be effective, its practice must be predictable and reliable. By implementing an accounting system to be used over the course of several financial periods, a business can accurately ascertain whether it is making a profit or a loss.
- Function accounting principles
Accounting principles are used to tackle functional problems such as when to record a business’s incomes and expenses. Certain principles make it clear that revenue should be recorded as and when it occurs, while others such as the matching principle recommend that investments and profits from these investments should be recorded in the same time period. This makes it simple for investors to see when and how their money is used.
- Features accounting principles
The principle of periodicity allows businesses to treat any period as a financial period for a business. While a business may not start or end on a specific date (since the business continues indefinitely), the principle of periodicity allows accountants to present records as if this specific period was the only one of importance.
- Considerations accounting principles
The final group of accounting principles offer guidelines of how to present accounting information and the financial status of an entity. These are important in order to provide an accurate picture of the entity’s financial statement as it really is by treating assets in an orthodox manner.
Use QuickBooks accounting to bring your business in line with basic accounting principles
While there is greater demand for large accounting firms to adhere to accounting principles, it is highly recommended for all accountants to follow the same guidelines. By doing so, you can rest assured that anyone who sees your accounting records will be able to understand them easily.
QuickBooks accounting software solutions take the hassle out of recording your income and expenses, giving you the freedom to concentrate on keeping your finances in line with international accounting principles.