Accounting concepts that are exemplified here

This is a language of business, in which we record, classify and categorize all the assets, liabilities and capital of a company. Before starting accounting, these principals should be known. Otherwise, we can’t understand accounting. These are the principles that provide the basis to accounting. It is a framework in which accounting flows. Adelaide accountants have to follow all these principals before reporting any kinds of transactions. These are universal standards, derived by the accounting world’s leading professionals and these principals ensure the transparency in the records.

IASB is a standard defined for accounting, and they publish them. In financial accounting, the following of such principals is mandatory; their violation is considered as a crime.

1. Relevance
2. Reliability
3. Matching concepts
4. Prudence
5. Materiality
6. Accruals
7. Business entity
8. Duality concept

These eight principles are the most important one. Every accountant should know their treatments. Here are examples of each of them.

Relevance

In relevance, it is considered, the information is relevant to the business. This information has an impact on the decision making of the company. Two things are cleared in it, first is the relevance of the information and other is the timeline of the information. This tells us about the correctness of the decision already made and helps in making new decisions of the business.

Reliability

This concept tells about the reliability of the information provided. At what extent the provided information is reliable and trustable. It is considered that all the information provided is reliable and showing true and fair value to the reader. He can make a decision based on this data. It is also considered that there is no misstatement and no omissions are found in this information. If any errors found in the information, this reduces the reliability of the information.

Matching concept

This principle is related to the expenses of an organization; all the expenses should be recorded when they occur and should match with the revenue of the same accounting period. In simple words, the expense should be recorded when they occur. In this way, they will be deducted from the same accounting period revenue. In doing this, there would be consistency in all the financial statements.

Prudence

Record liabilities and expenses once they occurred, no later recording. Even if the amount and time of the expense or liability is uncertain. So, this made a balance in accounting statements. This is also known as the conservatism principle and in this Adelaide, accountants should record the expenses and liabilities as soon as these are occurring. On the other hand, in the case of revenue; when they are assured.

Materiality

This is a cutoff point of information; after this point, the information becomes relevant. One could make a decision after this point; this is the significance of the transaction. There might be errors in the financial statements. This tells the materiality of a statement. In simple words, how much errors and omissions a company can bear. So, this is the information that a company can neglect in a few circumstances even if they have errors.

Accruals

This is the most important concept of accounting, this is simplified in a way to record all the expenses, and income must be recorded in the same accounting period, no matter when the cash is involved in it. Only one statement would be affected by this, that is cash flow statement. If no cash is received and recorded in, then the cash flow statement would be affected. This is only because the cash flow statement tells about the cash in and out.

Business entity

This concept helps in understanding the difference between business and the owner. Both are two different persons, and their expenses and revenues are also different. Owner may have multiple sources of income, and the owner’s income will not be recorded in business transactions. If the owner is using the personal car, his expenses would not be recorded in business transactions. Still, if he is using a car for business use, then its expenses would be recorded in business expenses. So, both are two different things.

Duality concept

It’s a double-entry system, universally accepted and a standard for accounting. It shows that every transaction has a double impact, and two effects would be recorded in the books of accounts.

So, understanding of all these principals is mandatory for the Adelaide accountants, and one can’t handle the accounting entries by knowing them in detail.