Financial management is one of the most crucial processes in every organization, both public and private. It is because businesses revolve around monetary transactions and cash flow. Owing to this, a comprehensive deployment of accounting principles is essential for effective decision making in business.
Considering the present taxation scenario in UAE, it is safe to say that business owners should keep vigilant monitoring and supervision of their accounting department to ensure compliance with commercial laws. In this regard, poor accounting is the most critical hurdle that can be eliminated with sound knowledge of accounting standards and regulations.
The article is aimed at presenting the essential principles of accounting comprehensively for helping business people improve the management of their accounts.
Golden Principles of Accounting That Every Business Should Know
Generally, accounting is termed as the language of businesses. It is referred to as a systematic process to identify, collect, classify, record, measure, and summarize the essential interpretation of financial data. The field is incredibly extensive when it comes to applying fundamental concepts and rules in the financial operations of the businesses.
However, there are certain principles that companies should consider deploying for ensuring compliance with accounting standards. Let’s examine those:
Principle of Economic Entity
The principles widely deal with the separation of accounts in the business. It means that accountants should comply with the rule of managing separate accounts for personal and business purposes. No transaction should be mixed with the personal account of the business owner.
The principles are extremely important because individuals face different issues if the financials are not managed separately. Additionally, the companies operating in the UAE should comply with the VAT laws, and so, they have to record everything separately.
Principle of period Assumption
Usually, the period for accounts management is six months or an accounting quarter. However, the duration may vary depending on the business nature and scope of account requirements. The principle of time period assumption help in the evaluation of the financial performance of the companies.
Owing to this, businesspeople acquire the services of best accounting firms to analyze the overall improvements achieved in financial management. The primary purpose is to quantify the levels of improvements made by the company in each interval of the financial year.
It is the primary foundation of business accounting. The principles of matching encourage the businesspeople to keep a record of all expenditures. For example, the payroll activities and other expenses should be managed optimally to improve financial management. Moreover, the companies should be aware of all due dates of their business transactions and bills.
Principle of Monetary Unit Assumption
The rule required the people to keep a record of each and every transaction made for business purposes. Additionally, companies should record every monetary unit event for transparency. The monetary units are considered the stable language of accounts. Owing to this, companies should vigilantly monitor business transactions.
However, business owners face different confusions in managing cash flow daily. Owing to this, they better opt for CFOs to keep track of all their financial movements to maintain records comprehensively.
It is a well-known fact that the value of business assets keeps on changing every now and then. Therefore, the cost principle of accounting deals with the changing monetary assets value for bookkeeping. The value is generally considered the original as per the time of purchase.
The companies are required to keep the prices the same even after years of purchase. It is referred to as the historical record of the cost principle. However, some business people ignore the very fact and end up falling the prey of accounting errors.
Principle of Going Concern
The principles enable the companies to dream for eternal life. The owners should carry business operations and activities, keeping the long term existence of the company in mind. It all revolves around the organizational vision of the company.
Principle of Revenue Recognition
The principle is significantly vital for the businesses because it requires to manage the accounts effective based on products or services sales and purchase. The primary purpose is to keep a record of the individual sales for payment receivables. For this, business people rely on the best accounting firms in Dubai to ensure payments received and recorded comprehensively. Based on the daily sales financial estimations, the quarterly and annual revenue is generated.
Principle of Full Disclosure
There are many parties other than the owners interested in the business. Business investors, financial institutions, creditors, and many others want to be part of a profitable company.
The principle of full disclosure companies should be made their critical financial data available to the public for the sake of financial disclosure. No doubt, it helps the external entities to make investment decisions based on the economic conditions of the company.
Keynote: Accounting is a fundamental Function of Financial Management!
Summing up, businesspeople should gain some familiarity with the essential principles of accounting to deal with the financial growth of their companies. It is because revenue generation and decision making comprehensively based on financial management.
So, don’t forget to follow the fundamental guidelines of accounting to ensure the stability of your business!