Accounting is the backbone of every business. Starting from bookkeeping to creating financial every report assists the shareholder and lenders to a significant decision. Apart from these systematically recorded data either for auditing or filing tax, assists the concerned persons. But, everything is possible only if the company hire a qualified accountant or firms like gold coast accounting firms. The benefit of hiring an accounting professional is that he knows all pivotal accounting theories and concepts to safeguard business fiscal health. Let’s discuss some of them:

What is Accounting Theory?

It is crucial for every business owner to understand basic accounting concepts and conventions. The principles ensure the company’s financial condition and let the owner know whether everything is managed properly or not. Behind these several rules, some of the most common accounting theories are cost concepts, matching concept, materiality, conservatism and monetary unit. These help to create the company’s accounts systematically.

• Business Entity Concept: Business is considered a different entity from the owner. All the entries are recording by considering a business point of view not what the owner has paid. Business and owners liabilities are treated separately. Even if the owner withdraw money for personal expenses are treated as drawings and the amount is deducted from owner’s capital under liabilities.
• Going Concern Concept: The concept of going concern defines that the company is always created by considering infinite life. Even after the death of the company’s owners or say founder company do not liquidate. This helps in providing basis for creating a balance sheet.
• Cost principle: This principle applies to assets. As soon as, any business asset, office supplies, factory equipment or franchise is bought. Everything is recorded into books of accounting. With the passage of time, every recorded asset is depreciated with a certain method i.e either written down value method or the straight-line method. The deprecation value starts as soon as the transaction entered into documents.
• Matching Principle: This principle implies, all transaction related to expenses or revenue must be kept in accounting books as soon as these arise. It does not matter whether the amount has been paid or not in the same financial year. For example, if a company has appointed A as a salesperson in January, but do not pay his salary in February. This does not mean no entry will be passed on to same month. But proper entry is framed by crediting outstanding salary account. The same way liability will be forward to next year or until the amount has been paid. This principle requires an accountant must be careful throughout the year for outstanding transactions. And when transaction completed passing the valid entry with attached documents.
• Materiality principle: The concept of materiality state that accounting can be ignored if a particular transaction has a minor impact on all over the business. But b careful while judging such transactions. For example, if you paid for minor charges such as $240 for wireless internet charge and split the amount into $20 as monthly instalments for the next 12 months. This amount will impact your financial accounting if you are running a small business. Otherwise, no need to bother. On the same side, the Securities and Exchange Commission suggest that 5% of the amount in budget reflection can be possible but not above.
• Conservatism principle: This theory defines all current and long term liabilities. Business needs to ensure that it has enough money to pay and clear all pending bills. Therefore, this principle is anticipated. It guides the firm to record all present and potential liabilities as soon as these arise. Hence, a business can easily plan to crop all future expenses.
• Monetary Unit Assumption: This principle applies to large accounting firms that work globally. It represents the money value and guides whether it will be same or change in a specific time. All these benefits the firms for making investment decisions, expansion and diversification.
• Objective Concept: This concept defines that all transaction must be recorded by considering objective manner. For every passed transaction in accounting books, there must be a document or voucher attached. This also helps in verifying the actual cost of the product or assets and date to make further calculations such as the depreciation of finding a real worth of the asset.

In accounting, various types of transactions related to expenses, income, assets and liabilities are recorded. All these assists shareholders, investors and lenders to make transactions with the firm. Therefore, every firm creates accounts with internationally established standards and principles.

For every business firm that aims to provide a true and fair picture of financial record must hire accounting professionals like accountants gold coast QLD. these are well known for providing timely and trustworthy records to clients.