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The going concern principle (Also look at Accrual Concept, Monetary Unit Assumption and Business entity concept ) mentions that an organisation will certainly proceed with its operations for the near future. The principle presumes that the firm will not be required to stop its procedures or sell off because of any type of factor.

Keep in mind that services presume that they will certainly run forever and also they will certainly utilize their properties up until they are totally decreased. Services accumulate costs as well as pre-pay expenditures due to the fact that they plan to run forever.

This indicates that some organisations may not run forever. If your accounting professional thinks that business could no much longer be a going concern, this increases the concern of whether your organisation’s possessions are damaged.

This implies that the worth of a company that is presumed to be a going concern is generally more than its discontinuation worth. This is due to the fact that a going concern entity can proceed making revenues for as lengthy as it runs.

Auditors review a service’s capability to proceed running as a going concern entity for a duration not more than year. There are a couple of points they think about to establish if business ought to proceed running. These consist of:

– Proceeded adverse patterns particularly running outcomes

– Infraction of finance contracts by the business

– The firm being refuted profession credit history by its providers

– Any kind of legal action versus the business that needs it to quit running

– The firm undergoing long-lasting expensive dedications

It’s essential to maintain your organisation procedures tidy and also escape anything that may make an auditor tip that your company must not proceed forever. It’s feasible for your company to reduce an auditor’s sight of the organisation’s going concern condition.

Let’s not be reluctant to talk to an accounting firm in Singapore if you require aid so to guarantee you are constantly on the appropriate track.

Accounting is a systematic recording, compilation of reports, and analysis of financial transactions of business. Note that a business accountant should only communicate business transactions which can be expressed in monetary units. This is what is known as the monetary unit assumption in accounting (Also see Accrual concept and Business Entity concept).

As an accounting or a financial professional, you should abide by ethical standards that govern what kind of business you conduct, who you serve, and how you use your skills. The Financial Reporting Standards set some of these account ethical standards and accounting principles. Regardless of whether you want to hire an accountant or you want to do the accounting tasks for your business on your own, you should be aware of these accounting standards and principles. One of the accounting principles you should understand is the monetary unit assumption.

The monetary unit assumption is sometimes known as the money measurement assumption. For you to apply this accounting principle, you must ensure that the transactions you are recording are reliably quantifiable in terms of money.  For example, if you pay accrued wages of S$3000 to an employee, this transaction can be recorded in your business books because it can be expressed in terms of money. However, this doesn’t mean that the amount must always be exact. In some instances, estimates are used in the preparation of business financial statements.

Non-monetary transactions

These are transactions that don’t involve any financial matter and don’t result in a transfer of funds between the buyer and the seller and don’t affect the business financial accounts.  For instance, employees are a valuable asset in your business, and you can’t express the value of your employees in terms of money. Also, a business brand name is an important asset, but you can’t attach a monetary value to it. According to the monetary unit accounting principle, you cannot include the value of your business employees in your business books.

Limitations of Monetary Unit Assumption

Though monetary unit assumption offers basis upon which to value business transactions, there are two primary limitations: handling items which are difficult to quantify and inflation.

Keep in mind that the monetary unit assumption doesn’t take into account the effect of inflation. Inflation is the increase of prices of products with time. For example, a product could be bought at S$1 in 1977, but today, it costs S$4. The monetary assumption doesn’t provide basis for accounting for this difference in prices as a result of inflation.

Talk to an accounting firm in Singapore today so to get some professional advices so to ensure your company’s accounts are properly kept.

“This is my business and I can do what I want with it!”

Have you ever made like this one? Most business owners think that they can just record their business transactions together with their own financial information. But this is wrong. According to business entity concept, you should record all the transactions associated with your business in separate books from your personal fiancé information records.

This requires you, as the business owner, to use separate accounting books for your business and entirely exclude any information regarding your personal assets and liabilities. Failure to adhere to this principle will make it difficult for you to determine your taxable income and that of your business. It will also be difficult for you to determine the exact amount of profit or loss that your business is making.

Here are other benefits of keeping your business books of accounts separate from your own financial information.

Creates a business entity

Note that Financial Reporting Standards seeks to ensure that you don’t make your company a hobby. Note that losses and other expenses related to hobby aren’t tax deductible. However, a business can deduct both.

Therefore, maintaining separate books of accounts for your business offers it more credibility in the presence of Financial Reporting Standards.

Better record keeping

For some people, it’s difficult to keep consistent and up-to-date business records. When these records are intertwined with expenses and income records of the business owner, then, record keeping will become an uphill battle. Besides, intertwining your personal finance information and your business records waste a lot of time especially for accountants trying to figure out what to include in the financial statements and what to exclude.

Enhance your business credit

If you intend to apply for a bank loan, supplier credit, and any other form of credit, you should first establish credit identity for your company. One way of achieving this is by applying for a credit card and then use it for your business expense. This is practical if only you have kept your business books separate from your personal finance books.

Now you understand the necessity of keeping your business and personal financial accounts and records separate. It’s time to set up separate accounts for your business and if you have been recording the business transactions in the books as your personal finance information, set up separate financial records for your business. This will ensure that your business complies with the business entity accounting principle (Also see Accounting Principle – Accrual Concept and Going Concern Principle).

Let’s not hesitate to get an accounting service in Singapore if you need assistance so to ensure you are always on the right track.

Accrual concept is an accounting method that requires you to record both expenses and revenues in the when they occur regardless of whether you have received the cash or not. The primary benefit of using the accrual accounting method is that your business financial statements will reflect every expense associated with the recorded revenue for that accounting period (Also see Should You Outsource Accounting Function?).

Generally, accrual accounting approach allows you to recognize economic events and match each revenue you have received to the corresponding expense (matching principle) when the transaction occurs rather than when you receive the payment. With that, you will be able to combine your business’s current cash flow and the expected cash flow to get a clearer picture of your business’s financial condition.

For instance, when you sell a laptop to a client who uses credit card, accrual accounting method and cash accounting approach will have different perspectives regarding this transaction. Cash accounting will require you to recognize the revenue when it’s received even if you will receive payment for the laptop after 6 months. On the other hand, accrual basis of accounting allows you to record the revenue at the point of transaction.

Most businesses, both big and small, consider accrual accounting to the standard accounting method with exception of a few operations. This is because it offers a more accurate image of any business’s current financial position. However, its relative complexity makes it hard for some businesses to implement it. For instance, if you don’t understand account in accrual basis, then, you will need to hire a professional accounting to help with the numbers.

Keep in mind that accrual concept of accounting is the exact opposite of cash accounting. While accrual accounting concept requires you to recognize revenue and expenses as they occur, cash accounting concept requires you to recognize revenues and expenses when you receive the payment.

This accounting concept (Also see Monetary Unit Assumption and Accounting Principle – Business Entity Concept) has become very popular due to the increasing complexity of any business transactions and the fact that most business owners desire accurate financial information. Besides, projects that can’t provide revenue within a short time affect the business’s financial condition at the point of transaction. Thus, it will make sense to have such events reflect on the business’s financial statements during the same accounting period when these events and transactions occurred.

Your choice of the accounting method depends on the requirements set by the Financial Reporting Standards. Therefore, it’s advisable to understand the FRS so that you can make the right choice.

This can be really tricky if you are unsure how to go about so if you need accounting services in Singapore, contact us so we can directly you to a reliable service provider.