The laws and rules that must be followed while drawing up a balance sheet go into the hundreds of pages. Accountants often stick to these five criteria while putting up financial accounts.
1. Principle of Accrual
Your company sends out products to a client in one fiscal period but doesn't get paid until the next fiscal period. At what point in time should it enter the sale into its books?
2. The matching principle
During the first quarter of the year, your company purchases manufacturing equipment that it will utilise for the next twenty-five years. For bookkeeping purposes, when does the expense truly occur?
The goal of the matching concept is to harmonise income and costs. This indicates that costs should be recorded in the same Buchhaltung Wien periods that revenues are earned, and vice versa. As a result, your company should divide the expense of the tools into 24 equal quarterly instalments.
3. The historic cost principle
With rising property prices generally, the worth of your company's headquarters has gone up by a little amount. Do the books need to reflect this?
Since accounting is concerned with the past, there must be uniformity and comparability across accounts. This is often accomplished via the use of the historic cost concept in financial statements.
A cost-effectiveness analysis that takes into account the past is crucial. Allowing companies to declare their assets and obligations at current values would disrupt the integrity of accounting Vienna, hinder comparability, and produce incorrect financial statements due to the volatility of market prices, especially for real estate.
So, the answer is no, your company shouldn't adjust its books to account for the rising value of its headquarters.
4. The conservatism principle
The potential for many environmental litigation means that your company is planning for substantial legal expenditures in the future. Must we factor in these possible expenditures in our budgeting?
In principle, there are a few different ways this kind of transaction may be documented in the books. In the absence of checks and balances, this implies that two accountants might record the same transaction quite differently.
Accountants are obligated to go with the method that results in the smallest decrease in net income or net assets in accordance with the conservative principle. Expected expenses, such as legal fees and settlement costs, should be recorded immediately, but expected profits, such as those from a new customer contract, should be recorded only when they actually materialise.
5. The principle of substance over form
During production, your company employs the usage of equipment that it leased for an extended period of time. In spite of the fact that the lessor maintains legal title, should it treat the equipment as an asset anyway?
Financial statements by accounting Vienna must reflect the economic content of transactions and events, not only their legal form, in accordance with the concept of substance over form.
End Note
Financial statement preparation and accounting methods are guided by several regulations but may be boiled down to five fundamental concepts. They are the conservative principle, the principle of content over form, the concept of matching, the principle of historic cost, and the accrual principle.
Collectively, they address issues such as how to account for leased equipment throughout the course of both short- and long-term contracts, how to recognise revenue, and how to handle asset depreciation and appreciation.
Many business choices must be memorialised in writing, and lawyers would do well to familiarise themselves with these concepts so that they may assist their clients to avoid difficulties rather than unwittingly inserting them into contracts.
