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Guide to the Principles and Practice of Business Accounting

Posted by on Feb 8, 2015 in Business |

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The connection between business finance and accounting involves the usability of balance sheet data for the purpose of adequate financial analysis. Usability balance sheet data as an essential material of the assumption of financial analysis refers to the use of appropriate methods of balancing (valuation) in the preparation of balance, which means that the reliability of the data in the balance sheet is depending on the correctness of assessment. As a result of improper valuation it may occur hidden reserves in case of underestimation of the assets and hidden losses in case of overestimation of the property, which prevents realistic assessment of the financial situation of the company.

 

Theory of balance means basic financial statements which have been prepared in accordance with: principles of proper balancing, accounting standards, the legal regulations and  internal accounting documents of the company.

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The principles of proper balancing represent the general rules which application provides formal and material correctness of the balance sheet and income statement. These principles have the character of legal standpoints and must be respected by all entities that prepare the balance sheet and income statement. These principles are: the principle of causality of income and expenditure, the principle of implementation (presentation of results in BU), historical cost, objectivity, completeness, consistency (mutual coherence) and caution.

 

Accounting standards are methodological instructions relating to the inclusion and processing of accounting data and their shaping into the financial statements. They are the central and most important part of the accounting regulations which, effecting on the quality and content of the balance, directly affects the content of balance sheet data. The term of accounting standards include the International Accounting Standards IAS and national accounting standards.

 

Business-Accounting-SoftwareLegal regulation applies to the economic area where several basic law establishes accounting issues. These are: the Law on Public Corporations and the Law on Accounting and Auditing of financial statements. The Law on Public Companies is one of the most important economic system laws, which contains provisions in principle on the obligation of companies to keep books, prepare and keep business reports. The Law on Accounting and Auditing detailed normative regulates the accounting issues.

 

Internal accounting companies act regulates the issues that are not resolved by the law. The issue of choice of accounting policy is essentially a question of substantive content of the financial statements. It depends on several factors: the share of certain positions in the structure of assets, liabilities, revenues or expenses, then the basic characteristics and specificities the chosen method, the observed time period.

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The elements that determine the amount of the gain or loss are income and expenditure. Income is defined as an increase in economic benefits during the accounting period in the form of inflows or increases in assets or decrease in liabilities which leads to an increase in capital. Operating expenses, as a negative component of the success of the company are treated as losses and expenses arising from ordinary activities. The emergence of expenditures is associated with an increase in liabilities or decrease in assets.