According to International Financial Reporting Standards (“IFRS”) an accounting policy should only be change when the change is either required by a standard or interpretation or when it means that the financial statements give more relevant and reliable information about the effects of transactions, other events or conditions on the entity’s financial position, performance or cash flows. The reason I quote IFRS is because it’s the basis for most accounting standards in the world. Obviously one should consult their local legislation, but something as fundamental as changing an accounting policy is most probably treated the same way.  Continue reading →

Now that you’ve chosen an accounting policy, you’re expected to apply it consistently. Consistently in this sense means from period to period the same way.  Continue reading →

Accounting policies are what you use in your accounting to have your financial statements prepared in a certain way. They are specific principles, bases and guidelines, rules and practices used when preparing and presenting financial information for your company.  Continue reading →

Cash basis of accounting is doing exactly as the name refers – you account for transactions as the cash “moves” (cash physically or through bank accounts). Note that when cash didn’t “move” (i.e. you didn’t pay your bills or you did not receive money from clients) you don’t account for the named transactions either. It’s just left there “hanging” sort of say, somewhere on papers or in your memory. They are your unpaid bills and invoices.  Continue reading →

Consistency is something we’re asked to enforce in almost all of our doings and in every walk of life. In the light of accounting the meaning of consistency is the same, the importance is the same although obviously the things to be consistent with are specific:  Continue reading →

As we said with cash basis of accounting that it follows the cash movements and periods pay no role in accounting for transactions, it’s exactly the opposite with accrual basis of accounting. Simply put the accrual basis of accounting means that you have to account your transactions exactly in the period they relate to and in the amounts that relate to this specific period regardless whether any cash has been paid. If there’s for an example service received over two periods, the invoice is also accounted into two of those periods by proportion the service is received in.  Continue reading →