5 Accounting Principles Every Small Business Owner Should Know

November 09 14:41 2021 Print This Article

The going concern principle is one of the top concepts business owners must understand. Going concern is an underlying assumption that a company will continue operating indefinitely. It is also a principle that requires companies to show evidence of the assumption in their financial reports. 

Applying this principle in the financial reports is critical, especially so that investors and creditors will trust the company. Application of the principle in practice includes the valuation of assets at cost rather than at liquidating value. Going-concern also permits businesses to defer some of their expenses until a later period.

While it may seem confusing at first, employing the going concern principle in the accounting process is not very hard as it is inherently implemented in accounting standards. This means that as long as the company follows the Generally Accepted Accounting Principles (GAAP), they adhere to the going concern principle. 

Entities using small business accounting software do not have to worry about its application, too. As long as the company uses the best accounting software for small business, it equipped itself with a tool that follows the GAAP.

Moreover, if the business owners, accountants, or managers acquire evidence that their going concern is questionable, it must stop reporting under such an assumption. Examples of red flags include impaired assets, inability to meet maturing obligations, and continuous losses.

If doubts arise about the business’s going concern, the entity must disclose it in the financial statements. The statements should also show the management’s interpretation of the disclosed conditions, as well as their plans to address them.

Applying accounting principles can be overwhelming at first, but it will eventually be very straightforward once you get it right. Learn the proper accounting from a professional with the capabilities offered by cloud accounting for small businesses. 

KIPPIN is a firm providing accounting, bookkeeping, payroll, and tax services to independent contractors and small businesses. KIPPIN also offers accounting solutions with its very own accounting software that is easy to integrate and use. Contact KIPPIN today to get professional guidance and tips on employing accounting principles and learn how automated accounting systems will help streamline operations.

5 Accounting Principles Every Small Business Owner Should Know
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Clare Louise
Clare Louise

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