Basic Accounting Principles and Guidelines
There are general concepts and rules that govern the field of accounting in Singapore. As a business owner or an accountant, you must ensure that your accounting activities are in accordance with the following accounting principles;
Going on concern principle
According to this principle, a business should continue to run indefinitely. Therefore, the business fixed assets stated in the balance sheet should be valued at costs less depreciation rather than the break up value. The main rationale on this is that the business is able to continue its business and therefore the cost of assets should be apportion to the financial period in which it is expected to bring in economic benefits to the company. Note that this principle applies to all businesses in Singapore including sole proprietorship, companies, partnerships, and more.
Also know as the accrual concept. All the revenue that your business has earned in a given period should be matched with the related expenses during that period. For example, you sold a sofa at $1,000, and its initial cost was $450 in 2005 and sold a dining table whose initial cost was $350 at $920 in 2006. When recording these transactions using double entry accounting, the sale of $1,000 should be matched with the cost of $350 in 2005, and the sale of $920 be matched with the relevant cost ($350) in 2006.
Accounting entity concept
Every business is a separate entity from its owner or owners and is regarded as an accounting business or entity (Also see 3 Common Accounting Mistakes that Most Business Owners Make). This implies that all details related to the business finance are reported separately from its owners’ financial details.
Note that even a sole proprietorship is separate from its owner when it comes financial reporting. However, when it comes to legal issues, the sole proprietor can’t be separated from his business. Companies and corporations are separate entities from their owners both financially and legally.
Accounting period concept
The life of any company is divided into specific periods (accounting periods) for the purpose of financial reporting. Depending on the nature and size of your business, this accounting period could be a year, a quarter, or several months.
Monetary concept in accounting
The monetary concept states that only the transactions that can be measured in monetary terms are recorded in the financial records. Therefore, you should record a transaction if you can determine how much Singapore dollars the transaction involves.
All accounting records in your business shall be prepared using these accounting principles. It is advisable to seek help from accounting professionals if you aren’t sure about how to prepare the accounting records and financial statements according to these accounting principles.