Introduction:
Every business follows a framework to have a smooth run of their business.
This framework makes things more comfortable for the business to maintain financial statements.
Financial statements are the most significant aspects of the business because it gives them a concept of functioning.
A financial statement is a complete record of the transactions and events in the business in the last year.
Separate identity:
Business and businessman are two separate identities.
Transactions recorded in financial statements are prepared with the view of the business and not the owner. Both have separate accounts and calculations.
A business owner is treated as a liability to the business because he charges interest on capital on the capital invested other than his share of profit which makes him the internal liability.
On the other hand, if the businessman draws some money from the business, he should pay interest on drawings.
Accounting Period:
The accounting period states that the business should follow a set period with intervals for the inspection of profits and losses and the expenses incurred in the organization in that particular period.
It helps the business analyze and compare the two periods, which helps them create strategies for the next term. Generally, April to March is considered an accounting period in most countries.
For example: If a business owner prepares books of accounts for his business from the last few years, he can analyze the profits and losses as many as expenses over the years to look at what should be treated.
company.
Contingency:
The contingency is a situation that may or may not occur. Mostly it depends upon the future results.
Example- winning a court case.
Cost:
The should be recorded at the cost it is acquired.
Acquired cost means the original cost of the asset plus any modification or installation made to the original asset. Further calculations will be subject to the price recorded in the books of account.
A change in the value of the asset will not have any impact.
Gradually, this asset will lose its value due to depreciation.
Cost is yet another aspect while deciding on the location.
A business looking forward to buying a place for their business wants the value for that premises.
An organization can have two types of costs while selecting the premises for their business. Either it could be the price of the establishment acquired or as an expense in the form of rent.
Companies looking forward to the long-term Operations and don’t want to commit hefty amounts to acquire the place take the lease route.
Double-entry bookkeeping:
The double-entry bookkeeping states that accounting is based on dual aaspects
There will be two entries for a transaction, Debit, and Credit of an equal amount.
For Example, Depreciation on an asset will firstly have a debit impact on profit & loss and will be credited from the asset as the 2nd effect.
Location plays a significant role in a business. Your business needs to be where your customers are.
Visibility of your business is not only good for the sale of your product, but it is also so helpful in creating a relationship with their customer.
The location of a business depends upon various factors like cost, availability, and accessibility by the customers.
Some factors play a significant role In the decision of the location for your business.
Revelation Of Facts:
The revelation of facts is necessary as a business needs to reveal the appropriate information to its stakeholders, but by no means does it states that it should disclose its business secrets.
The relevant information is different for different people. For a loan-providing bank, relevant information could be the ability to repay the loan.
A company should publish its detailed balance sheet For the present shareholder and the public willing to invest in your
The revelation of useful information:
The revelation of useful information means it is crucial to reveal the relevant information, but it doesn’t mean recording the irrelevant information.
The company needs to disclose the information that holds some value to them. Value addition in a business could be different for different businesses.
Emphasis on monetary transactions:
Any transaction which holds a value in terms of money makes it to the books of accounts. Non-monetary transactions can be felt or expressed, but it is difficult to measure them.
Transactions that are not cash or can not be expressed in the money value are not eligible to make into the final accounts.
The downside to this principle as other quality aspects like efficient human resources cannot be recorded in the books of accounts.
For example, As purchases and sales hold the monetary value it is easy to record them. The loss of time is not possible to record due to the condition of disputes among the employees. Hence cannot be recorded in the books of accounts.
