Essential Accounting Principles for Successful Business Management in Canada
Running a business successfully in Canada can be challenging, and to ensure success, there are accounting principles that you should be aware of. If you are not comfortable with numbers, it is recommended to seek the help of a reputed accounting firm in Canada who will be well-versed in these principles and can assist in making your business successful.
As a business owner, it is essential to have a basic understanding of these principles to ensure that your business is on the right track. In this article, we will discuss some of the fundamental accounting principles that reputable accounting services follow.
The Entity Principle
The entity principle requires that accounting for an organization or enterprise must be kept separate from personal affairs or other businesses. This means that personal assets should not be included in the balance sheet of your business, and any personal expenses charged to you should not affect your business’s operating results.
The Consistency Principle
The consistency principle states that when a business has established an accounting treatment for an item, similar items should follow the same method. Accounting professionals should apply the same techniques and processes for years, and if they decide to change the method, they should describe the change properly on financial statements. This principle prevents individuals from changing methods to manipulate figures on financial statements.
The Time Period Principle
The time period principle states that accounting takes place over particular time periods recognized as fiscal periods, and transactions are assigned to these periods. Each accounting entry must be allocated to a specific period and divided appropriately if it covers multiple periods. If a customer pre-pays a lease or subscription, the agreed revenue must be divided over the entire time span rather than counted entirely on the transaction date.
The Measurement Principle
The measurement principle states that transactions should be recorded based on a reasonable basis. The “reasonable” basis depends on the type of liability, asset, expense, or revenue, and in several cases, the reasonable measurement is the actual price. In other cases, where the main thing is impairment in value below the price, a reasonable basis will be the lower cost of an asset and its fair value.
Conclusion
Running a business in Canada is not an easy task, and understanding these accounting principles can be challenging. If you are not an experienced accountant, it is recommended to seek help from a qualified accounting firm in Canada. Ensure that you choose a reputable firm that follows these principles to make sure that your business is successful. By following these principles, you can keep your business on the right track and make informed financial decisions.