The five important principles of accounting, by our Melbourne small business accountants
No matter what type of business you are in, from providing coaching services to selling cameras, your business operates under the same principles of modern accounting. The principles became commonplace in the 1800’s and our Melbourne small business accountants believe it is important for all businesses to understand the following principles;
1. The Revenue Principle
The revenue principle states that revenue is earned and recorded at the point of sale. Our business accountants in Melbourne state that revenue occurs at the time in which the buyer takes legal possession of the item, not when cash is accepted by the seller.
2. The Expense Principle
This principle is defined by when a bookkeeper logs a transaction as an expense in the books. This occurs at the time in which a business accepts goods or services from another entity.
3. The Matching Principle
Our small business accountants in Melbourne match each item of revenue with an expense. This is known as the matching principle and when a business does this it means they are operating under the accrual accounting method.
4. The Cost Principle
The cost principle states that you must use the historical cost of an item in the books, not the fair market or resell cost.
5. The Objectivity Principle
This principle states that you should use only verifiable and factual data in the books, not subjective data.
For more information on the accounting principles, please contact our Melbourne small business accountants today.