The Basic Principles of Bookkeeping

The world of bookkeeping is run by credits and debits. A credit increases an account on the left side of the balance sheet and decreases an account on the right side. Debits increase asset and expense accounts, and decrease equity, liability, or revenue accounts.

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A bookkeeper is responsible for recording and classifying all financial transactions made through the course of business operations. Very small businesses may use a simple system, while larger firms will use double-entry accounting processes that record every transaction in the general ledger and then prepare the end-of-year accounting statements. For help and advice on Bookkeepers Hereford, go to

The objectivity principle states that only verifiable data should be recorded in an organisation’s books. This includes objective evidence such as bank statements, purchase receipts, appraisal reports and cancelled cheques. This ensures that the data in a company’s books is dependable and reliable.

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Another important bookkeeping principle is the revenue recognition principle. This is the concept that a business should recognise revenue when it has generated significant capital over an accounting period. This should take place regardless of cash flow. It also encourages a conservative slant in the accounting records that may lead to lower profit figures.

The matching principle states that expenses should be matched with the corresponding incomes to reveal any cause and effect relationships between them. For example, when a sale is made, the commission earned by the salesperson should be recorded as income, and the related expenditure, such as office supplies, should be credited.

Niru Eilish

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