Starting a business makes you an entrepreneur but not an expert accountant. Whether you do accounting on your own or hire a professional, it is crucial that you are familiar with at least the basic concepts. Accounting, after all, builds the foundation for the success of businesses. It is integral to assessing the financial health of your business in the current and future market. Check out this in-depth guide to accounting basics and learn how to grow your business better.  

Guide to Accounting Basics 

Consider accounting as a quality check for all the financial transactions done in your business. It helps business owners manage money, maintain financial records and do taxes hassle-free.  

Accounting is the process of recording, assessing and interpreting a business’s financial information. Business owners can use this information to attract investors, make stronger business decisions, meet legal obligations and run financial operations smoothly.  Now that you know the definition, let’s check out the most common terms in business accounting. These terms will help you understand the tasks better.  

What are the Most Common Accounting Terms?  

The following are universal terms. So, you can use them while doing business accounts in  Saskatchewan, Alberta or any other part of Canada.  

1. Expenses- are costs involved in daily business operations such as salaries and utilities. All company purchases and money spent by the business fall under expenses.  

2. Liabilities- are what a company owes whether short-term or long-term. Examples include payroll, loans or taxes.  

3. Assets- are what a company owns. Examples include copyrights, trademarks and cash.  

4. Accounts receivable- refers to the money people owe you for your products or services. The invoice, for instance, that you sent to the customer is accounts receivable. It decreases as and when the customer completes the payment.  

5. Accounts payable- refers to the money you owe other people. The amount in this case remains due until repayment. Hence, it falls under liabilities in the balance sheet.  

Accounting is a vast area with innumerable terms and terminologies. In fact, some business owners prefer to hire accountants to avoid learning the accounting jargon. 

What are Canadian Accounting Principles? 

So, you know what accounting is and some common terms associated with it. Now it’s time to discuss the principles based on which accountants prepare and interpret financial reports.  

1. The Entity Principle 

‘Owner should keep business accounting separate from personal accounting and other  businesses.’ 

What should you do? 

Keep separate bank accounts for business and personal expenses. Your personal expenditures should not be reflected in business accounts.  

2. The Consistency Principle 

‘A business should follow the same accounting method from period to period.’ What should you do? 

Do your research carefully and choose the best accounting method so you don’t have to change the strategies all of a sudden. An experienced accountant can help you out here.  

3. The Time Period Principle 

‘Owners should maintain accounts over specific time periods (fiscal periods).’ 

What should you do? 

Allocate each transaction to a specific period. However, distribute the amount if the transactions occur over several periods. Let’s say a client pays a subscription amount every month. So, you need to calculate the revenue monthly and not all at a time.  

4. The Measurement Principle 

‘Owners should maintain the transactions on a reasonable basis.’ 

What should you do? 

Consider factors like assets, revenue, expense or liability while interpreting the business accounts.  

5. The Objectivity Principle 

‘Owners should record the transactions based on objective evidence.’ 

What should you do? 

Make each entry in the accounts factual and not based on personal emotions.  

What are the Common Accounting Tasks? 

Here are the basic tasks accountants do and you need to do too if you don’t hire one:

• Create a new bank account 
• Record assets, liabilities, expenses, equity and income 
• Prepare financial statements 
• Develop a bookkeeping system 
• Establish a payroll system 
• Sort out payments

Wrapping Up,  

Implementing this guide to accounting basics may seem like a daunting task but it is essential to the success of your business.  It lets you see where your business stands in the current market. It also helps you interpret and strategize to prevent risks in the future market. You can always seek the help of accountants in Manitoba, Saskatchewan or Alberta to save time and money. They can handle the accounts while you run the business.