Part Time Accountants in Dubai
In the previous blog we tackle the first part of the basics of Accounting, economic entity assumption, monetary unit assumption, time period assumption and cost principle. Today we will talk about the next three principles – full disclosure, going concern and matching principle.Full Disclosure Principle
This principle states that you should, as an accountant, must include all information in an entity’s financial statements that would affect the reader’s understanding on those statements. Important information should be disclosed within the statement or in the notes section of the statement.
In business terms, this principle requires the company to provide the necessary information so that people who are accustomed to reading financial information can make informed decisions done by the company.
Companies usually list its significant accounting principles as the first note of their financial statements.
The required disclosure can be found in the following.
- Financial statements
- Management discussions and analysis
- Quarterly earning reports, press releases and other means of communications
[See Filipino Accountants in Dubai]
Going Concern Principle
This principle is the assumption that an entity will remain in business in the future. It will continue to exist long enough to carry out its objectives and commitments. This simply means that the entity will not be forced to stop operations and liquidate its assets in the near term at what may be very low sale prices.
It is a required responsibility of the accountant to disclose a statement if he believes that the company’s financial situation will not be able to make the company to continue on. By making this assumption, the accountant is justified in deferring the recognition of certain expense until a later period, when the entity will presumably still be in business and using its assets in the most effective manner possible.
[See Dubai Accountant – Duties and Responsibilities]
Matching Principle
This states that all expenses must be matched in the same accounting period. This requires companies to use accrual basis of accounting. The matching principle requires that expenses be matched with revenues.
Ideally, the matching is based on a cause and effect relationship. If no cause and effect relationship exists, accountants will show an expense in the accounting period when a cost is used up or being expired. If a cost cannot be linked to revenues, the expenses must be recorded immediately.
Just for an example:
Sales commission expense should be reported in the period when the sales were made. Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid.
If the company agrees to give its employees 1% of its 2010 revenues as a bonus on January of 2011, the company should report the bonus as an expense in 2011 and the amount unpaid at the December 31, 2011 as a liability.
The future economic benefits of things such as advertisements cannot be measured; the accountant must charge the ad amount to expense in the period when the ad was run.
See Part 3 here.
Read Part 1 here.
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