Tutoring Academia Languages Health and Fitness Music Arts and Hobbies Professional Development
Share

What Are The Rules That Every Accountant Must Follow?

By Yann, published on 19/01/2019 We Love Prof - AU > Professional Development > Accounting > What Are The Golden Rules Of Accounting

What It Means To Be A Professional Account Or Certified Account

A Certified Public Accountant, i.e. someone who has successfully trained in accounting and taken their relevant CPA exam, is in charge of maintaining and monitoring financial records at a firm. So what is accounting and what do accountants do exactly?

As well as being able to organise the above factors, accountants in business also must be able to correctly read and interpret what these records mean in order to communicate them widely.

Any job description for an accounting position will dictate complete compliance with all government regulations and accounting principles.

In many cases, these individuals are called upon on a consultancy basis to give professional and valid financial advice to company leaders individual clients, so it is vital that they offer unbiased, accurate information.

Bookkeepers play an important role in preparing tax returns for companies or individual clients, with the time during which they are preparing tax returns quite demanding (tax returns are usually due for submission by 31st January). In most cases, however, CPAs work on a full-time, 9 until 5, basis.

What Does It Take To Work In The Industry?

While job requirements and descriptions may be tailored to a particular role looking to be filled, there are general characteristics and responsibilities all CPAs share.

Professional accountants must have very high attention to detail, for example, and understandably be great with numbers. They also must understand and put into practice the accounting principles and accounting procedures in order to remain legally compliant (to protect themselves and their client from any unlawful activity), i.e. they will have a responsibility to prevent fraud or theft, and maintain accurate financial information for their employer or clients.

With technological changes that are taking off in many corporations, anyone wishing to work in an accounts team must have good technical skills and be able to manage a number of accounting programs and pieces of software (not just Excel spreadsheets), particularly major accounting software such as QuickBooks or Sage.

Accountants cannot bend the rules, they will advise their clients of what is possible and what isn't under current laws. Accounting professionals must take an ethical approach, abiding by the rules that govern the industry. Photo on Visual hunt

The Golden Rules Of Accounting

As you’d expect with a field that is determined by accounting procedures, there are some rules that every accounting professional must follow when performing their tasks and duties. But while they may appear simple, they aren’t always as straightforward as accountants and their clients would like.

The golden rules have been listed below:

The Three Golden Rules

Taken from Management Study Guide.

  1. Debit The Receiver, Credit The Giver
    This principle is used in the case of personal accounts. When a person gives something to the organization, it becomes an inflow and therefore the person must be credit in the books of accounts. The converse of this is also true, which is why the receiver needs to be debited.
  2. Debit What Comes In, Credit What Goes Out
    This principle is applied in the case of real accounts. Real accounts involve machinery, land and building etc. They have a debit balance by default. Thus when you debit what comes in, you are adding to the existing account balance. This is exactly what needs to be done. Similarly, when you credit what goes out, you are reducing the account balance when a tangible asset goes out of the organization.
  3. Debit All Expenses And Losses, Credit All Incomes And Gains
    This rule is applied when the account in question is a nominal account. The capital of the company is a liability. Therefore it has a default credit balance. When you credit all incomes and gains, you increase the capital and by debiting expenses and losses, you decrease the capital. This is exactly what needs to be done for the system to stay in balance.

They must know whether or not to debit the receiver, depending on the circumstances, for example. Accountants, particularly those concerned with bookkeeping, must be aware of the golden rules of accounting. Photo credit: HloomHloom on VisualHunt.com

The golden rules of accounting allow anyone to be a bookkeeper, so long as they understand the types of accounts and then diligently apply the rules.

For instance, if they are confident that their figures are correct, self-employed individuals can do their own bookkeeping if they so wish, either submitting the details to HMRC themselves or paying an accountant to prepare the return and submit it.

The system of debit and credit is a fundamental rule of bookkeeping. It is very useful, however, it is also quite impractical to use in reality.

It is, for this reason, that a qualified employee may be required to offer advice on people’s accounts, especially if they have a lot of income or expenditure, or both, or if they have multiple sources of income.

Because many small to medium businesses employ junior level clerical staff to keep their many admin databases running, the golden rules of accounting were devised to assist these low-level teams and ensure that records were kept up to date for accountants to employ or refer back to when carrying out important financial tasks for management.

More On The Principles Of Accounting

For those studying the principles of accounting or who are interested to know more about the terms used within the financial industry, below are some keywords and useful phrases to be aware of.

Monetary Unit

In accounting, values all need to be recorded in terms of a single monetary unit or currency, i.e pounds and pence.

One financial record should not contain a mixture of different currencies, all units should be converted into the same monetary unit for the purpose of understanding and analysing the file or document. Assigning values or symbols to goods and items is also a problem since it is subjective.

The monetary unit principle adopted by accountants also assumes that the value of the unit of currency in which you record transactions remains reasonably stable over time.

Principle Of Conservatism

Accountants are said to be very conservative, i.e. they are sensible and prepared for the worst. Whether or not they want to hope for the best, they will never give false hope to their clients and will always display information as it is. This is as per the rules that have been created for their profession.

The principle of conservatism dictates that when there is doubt about any given figure, the organisation in question must state the lowest possible revenue and the highest possible costs to cover themselves. Such conservatism is the best plan of action for the company as it helps the management be better prepared for any forthcoming financial crises.

Accountants are conservative by nature, rather than being optimistic about their financial projections. When in doubt, accountants are taught to present the worst case scenario to avoid a financial crisis. Photo on VisualHunt

Cost Principle

Closely related to the above, the cost principle advocates that companies should list everything on the financial statements at the cost price, despite the fact they may appreciate in price. Assets like land and building, gold, etc are the most common but this increase in value cannot be reflected on the financial statements of the company until this appreciation is complete and realized.

Accountants are of the belief that the market value of anything is just an opinion, and they cannot work on the basis of opinions because there are many of them and everyone’s opinions differ. The sold price of something can be taken as fact since someone has already paid for it at that figure. Hence accounting works on cost principle and therefore on facts only, not opinions.

Full disclosure principle

This is yet another one of the concepts making up the suite of accounting principles, and which states that you should include in or alongside the financial records and statements of a business all of the information that may impact a reader’s understanding. This means that anyone looking at the records can get the full picture.

Time period principle

This concept may be the most obvious but it is also highly important. It states that a business should report the results of its operations over a standard period of time, in order to create a standard set of comparable periods, which is useful for analysing trends in the data.

Of course, there are many, many more principles that make up the accounting handbook, or suite of accounting principles. You can find out more by visiting the website named Accounting Tools.

Find out about the principal accounting institutes here.

Share

Our readers love this article
Did you find this article helpful?

Not helpful at all? Really?Ok, we will try to improve it for next timeThanks for the feedbackThank you, please leave a comment belowIt was a pleasure to help you! :) (No ratings so far)
Loading...

Leave a comment

avatar