Accountants are highly encouraged to regularly study, practise and understand accounting principles as well as guidelines before offering bookkeeping and accounting services in Singapore. For beginner accountants, there are 5 basic accounting principles to first familiarise oneself with:
- Entity Assumption
As a basic accounting principle, accountants are advised to keep business transactions of sole proprietorships separate from personal transactions of the business owners. While the sole proprietorship business, as well as the business owner, are technically considered one entity, they are kept as two separate entities when it comes to accounting.
- Time Period
Time period assumption is one of the most crucial basic accounting principles to keep in mind- the shorter the time intervals are, the likelier it is that the accountant will be required to perform estimate amounts that are relevant to the indicated time period. A good bookkeeping and accounting practice would be to display clearly the period of time (time interval) in each income statement’s heading, as well as the stockholders’ equity statement and cash flow statement.
- Full Disclosure
Out of all basic accounting principles, the requirement for full disclosure is one accountant should take care not to miss. Information that is considered important to investors and lenders should be fully disclosed within the financial statements, or at least attached to them in the form of footnotes. Accountants should also monitor the going concern accounting principle while at it, since this principle would assume that corporations will continue existing long without the possibility of liquidating in the near future. If the accountant believes the corporation may not continue on, the accountant should disclose the assessment.
- Matching Principle
To follow this principle, corporations would be required to use an accrual basis when it comes to accounting so that expenses are matched with revenues. For corporations who decide to use services that are difficult to measure when it comes to future economic benefits- like advertising, for example, the accountant may experience trouble when attempting to match such expenses with future revenues. What can be done, is for the amount to be charged to the expense in the time period where the corporation is using the service.
- Cost Principle
Costs are typically defined when the amount of cash (or equivalent) is spent on products/items that are originally obtained- regardless of when the purchase happened. These purchase amounts are usually displayed on financial statements as historical cost. As a result, the asset amounts will not be adjusted upwards to reflect any increase (inflation).