Basic Accounting Principles

Under the UK GAAP companies are required to follow basic accounting principles in the preparation of their financial statements. They are also required to disclose these accounting guidelines in the notes to the financial statements.

The following is the list of main accounting principles and guidelines that a company accounts must adopt.

Going Concern

The going concern concept states that the accounts must be prepared on the assumption that the business will continue to operate indefinitely or at least long enough to meet its objectives and commitments. This concept assumes that companies will not close or be sold in the immediate future.

If the company's financial situation is such that the accountant believes the company will not be able to continue on. The value of the company assets have to be marked down to their actual realizable value in the open market.

Further the company is required to disclose this fact in the director report and notes to the accounts so that the readers (bankers, suppliers, shareholders and other interested parties) of the financial statements should understand the company trading and financial position clearly.

Consistency

The directors must select suitable accounting services UK policies and apply them consistently.

Consequently it makes the accounts easy to read and comparable from year to year. 

For example, a company has a history of using the FIFO cost flow assumption. The readers of the company's financial statements have every reason to expect that the company is continuing to use the FIFO cost flow assumption. However if the company changes this practice and begins to use the LIFO cost flow assumption, that change must be clearly disclosed in the accounts.

Prudence

Prudence concept means do not overstate the amount of revenues and assets or understate the amount of expenses or liabilities. For example, sales should not be recognized in the profit and loss account until the invoice has been raised and services or goods have been supplied. However losses should be recognized as soon as possible. Like you should recognize bad debts or write off obsolete stock as soon as you become aware of the problem.

Accruals Concept

Accrual concept means that income and expenses should be recorded in period they occur, whether or not cash is involved. Prepayments, capitalization of long term assets, accruals are examples of accruals concept. The purpose of the accrual concept is that the financial statements should reflect all the expenses associated with the reported revenues for an accounting period.

Historical Cost Convention

Historical cost means that assets bought by the business should be recognized in the accounts at the price paid for the assets at the time of their acquisition.

Netting Off

Items should not be netted off in the accounts

Departure from accounting principles

Finally it is the directors’ responsibility to ensure the company accounts are prepared in accordance to Companies Act 2006.

Accounts must always give a true and fair view of company affairs. 

A departure from any of the basic accounting principles should be disclosed properly in notes to the financial statements together with the reason for departure.

Professional Help

If you require help with your company accounts, there are number of cheap accountants UK, providing services at very low cost. They can assist you in the preparation of your company’s accounts and submission to Companies House and HMRC.

Professionals present accounts in a clearer and timely fashion manner. They interpret the data so that you can made decisions based on accurate information.

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