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Accounting is more than just a set of numbers. Accounting is guided by standard frameworks, concepts and principles to ensure financial reports, like balance sheets and income statements, are consistent and accurate. These guidelines ensure that financial data is reliable and valuable for decision-making, preventing the information from becoming misleading and insignificant.
In this post, we’ll explore their meaning and why these accounting principles are essential for creating clear and trustworthy financial statements.
These principles include…
- Revenue and expenses are recognized when they are earned or incurred, not when cash is received or paid.
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- The going concern concept assumes a business will operate indefinitely to meet its obligations, with no intention of closure in the foreseeable future. This principle determines how assets and liabilities are recorded in financial statements. If a closure is anticipated, the financials must be prepared using a break-up basis. The foreseeable future usually refers to at least one year.
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