When you’re running your own business, you need to keep a close eye on your finances. No matter the size of your business, carelessness with money can lead to all kinds of trouble down the road, ranging from legal issues to loss profits. The good news is, you don’t have to handle the task of managing your finances alone. An experienced accounting firm like Nguyen CPA can lend a hand and ensure your business is on the right track.
Here’s how financial experts can establish accounting standards to help your business run smoothly.
Business accounting isn’t supposed to be a chaotic field. Businesses should conform to the generally accepted accounting principles – GAAP – when preparing and sharing financial reports.
This set of rules has early roots dating all the way back to the 1930s. Today, it’s overseen by boards including the Financial Accounting Foundation, Financial Accounting Standards Board, and Governmental Accounting Standards Board.
So, what exactly are these vital principles? There are 10 of them:
- Principle of Regularity, demands the accountant stick to a system of rules
- Principle of Consistency, establishes the accountant should uniformly apply the standards and report any procedural changes
- Principle of Sincerity, ensures the accountant offers a truthful presentation of the business’ finances
- Principle of Permanence of Methods, establishes consistency in reporting procedures
- Principle of Non-Compensation, says facts, such as debts, shouldn’t be covered up
- Principle of Prudence, says speculation should be avoided
- Principle of Continuity, establishes that the accountant should assume business will proceed as usual
- Principle of Periodicity, says accountants should stick to consistent time intervals when creating reports
- Principle of Materiality, says that accountants should include all information, so as not to mislead.
- Principle of Utmost Good Faith, establishes honest reporting
Many of the principles revolve around the idea that financial records should be orderly and honest. Anything that misleads the reader, either by omitting facts, making false comparisons, or flat out lying, goes against these principles.
Depending on their size, some companies don’t necessarily have to use GAAP. But unless you want to cause headaches for yourself and investors, look for a CPA who can standardize your business’ financial information.
An accountant will either apply GAAP to your reports, or he or she will use pro-forma adjustments, which can draw attention to and help you assess specific information. If necessary, a savvy accountant can also apply international financial reporting standards (IFRS) as you consider reaching an overseas market.