"Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards..."
Accounting principles encompass the key concepts, standards, and rules that guide financial accounting. This topic includes an understanding of GAAP, IFRS, and other accounting standards.
Financial Statements: Financial statements are documents that help business owners, investors, lenders, and other stakeholders understand the financial health of a company. They include balance sheets, income statements, and cash flow statements.
Accruals and Deferrals: Accruals are revenues and expenses that have been earned or incurred but have not yet been recorded. Deferrals are revenues or expenses that have been paid or received but have not yet been earned or incurred.
Double-Entry Accounting: Double-entry accounting is a bookkeeping system that records each transaction in two different accounts, one for debits and one for credits. This system helps ensure that the accounting records are accurate and complete.
Accounts Payable and Accounts Receivable: Accounts payable are amounts that a company owes to its creditors, while accounts receivable are amounts that a company is owed by its customers.
Cost Accounting: Cost accounting is the process of tracking and analyzing the costs associated with producing and selling a product or service. This information can be used to make decisions about pricing, production, and profitability.
Budgeting and Forecasting: Budgeting and forecasting are tools that help businesses plan for the future by estimating future income, expenses, and profits. These estimates can then be used to guide decision-making.
Taxation: Taxation refers to the laws and regulations surrounding the collection of taxes. As a business owner, it's important to understand the tax implications of different business activities and to properly file tax returns.
Depreciation: Depreciation is the process of allocating the cost of a long-term asset over its useful life. It's important to understand how depreciation affects the financial statements and tax obligations of a business.
Inventory Management: Inventory management refers to the process of tracking and controlling the inventory levels of a business. This is important because excessive or insufficient inventory can impact profitability.
Financial Ratios: Financial ratios are calculations that help businesses understand their financial performance. These ratios can be used to compare a business to industry averages or to track changes in performance over time.
Historical Cost Principle: This principle requires an asset to be recorded at the amount paid for it initially, irrespective of its actual value.
Matching Principle: This principle requires that expenses be matched with the revenues they helped generate.
Revenue Recognition Principle: This principle requires that revenue is recorded when it is earned or realized, and not necessarily when it is received.
Accrual Accounting Principle: This principle means that transactions are recorded when they occur, regardless of when the cash is received or paid.
Consistency Principle: This principle requires that a business uses the same accounting methods and procedures over time.
Conservatism Principle: This principle dictates that a business should not overstate its assets or revenue, and should understate its liabilities and expenses.
Materiality Principle: This principle requires that businesses only record transactions that are significant enough to impact decision-making.
Disclosure Principle: This principle requires that financial statements be accompanied by enough information for stakeholders to make informed decisions.
Going Concern Principle: This principle assumes that a business will continue to operate for the foreseeable future.
Economic Entity Principle: This principle requires that the transactions of a business be separate from those of its owners or other businesses.
Full Disclosure Principle: This principle requires that all material information that would influence the judgement of an informed audience is disclosed.
Objectivity Principle: This principle requires that accounting data be based on objective evidence that can be supported with documentation.
Cost-Benefit Principle: This principle requires that the cost of providing accounting information should not exceed the benefits that arise from its use.
Time period Principle: This principle requires that transactions be recorded into distinct time periods to help decision-makers ascertain their financial position.
"Some firms operate on the cash method of accounting..."
"Larger firms most often operate on an accrual basis."
"...no further disclosure is required."
"Accounting standards prescribe in considerable detail what accruals must be made, how the financial statements are to be presented, and what additional disclosures are required."
"Some important elements that accounting standards cover include identifying the exact entity which is reporting..."
"...discussing any 'going concern' questions..."
"...specifying monetary units..."
"...reporting time frames."
"In the public sector, 30% of 165 governments surveyed used accrual accounting..."
"...plus any specific disclosures required by their specific lenders and shareholders."
"...can often be simple and straightforward."
"Accrual basis is one of the fundamental accounting assumptions..."
"...accruals must be made..."
"...how the financial statements are to be presented..."
"Accrual basis is one of the fundamental accounting assumptions..."
"...identifying the exact entity which is reporting..."
"...discussing any 'going concern' questions..."
"...specifying monetary units..."
"...reporting time frames."