A Beginner’s Guide to Accounting Principles in India

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Accounting tracks finances and expenditures, and maintains compliance with laws at the centre of any company. It is therefore important for any organisation to be updated with the basics of accounting principles for their company’s success. 

In this blog, we will cover the fundamental accounting principles for any organisation in India and understand the role of quality accounting and bookkeeping services in India.

What’s Accounting?

Accounting services record, summarise, and evaluate financial transactions. It tracks liabilities, assets, expenses, and income for businesses. The key is providing financial information that informs stakeholders.

Importance of Accounting

Accounting is essential for any company as:

1. Financial Management: Accounting shows businesses the full picture about their finances. It provides facts about profitability, income and financial stability.
2. Legal Compliance: Proper accounting helps businesses meet tax laws and regulations. This helps avoid legal issues and penalties.
3. Decision Making: Accurate financial records help business people make sound choices regarding growth, cost-cutting, and investments plans.
4. Attracting Investors: Transparent and accurate financial statements are required to draw in investors and raise funding.

Basic Accounting Principles for Indian Businesses

Given below are the basic set of accounting principles for Indian businesses:

1. Accrual Principle

Revenue and expenses are recorded as earned or incurred, not when cash is received and paid. This particular principle offers a better idea of a company’s financial health.

2. Consistency Principle

Businesses should work with the same accounting methods and methods each time. This assures comparability of financial statements over time.

3. Going Concern Principle

This principle assumes that a business will remain in existence forever. It justifies using historical cost for asset valuation.

4. Conservatism Principle 

In case you are in doubt, accountants must be careful. What this means is acknowledging expenses and liabilities as soon as possible but revenues only when certain.

5. Materiality Principle

Accountants have to record essential financial information which could affect decision making by stakeholders. Insignificant information can be disregarded.

6. Full Disclosure Principle

Financial statements must contain all information required to know a business’s financial situation.

Accounting Process of Indian Businesses

This is generally what the accounting process includes:

1. Recording Transactions: The first step in accounting involves recording all financial activities. It covers product sales, purchases, receipts and payments. Transactions are entered in journals with double-entry bookkeeping where every debit comes with a credit.
2. Posting to Ledger: Postings from the journal are made to the ledger. The ledger is a sequence of records displaying changes in each account’s value.
3. Trial Balance: A trial balance is prepared at the end of a period of accounting to verify that debits equal credits. This identifies discrepancies in the records.
4. Adjusting Entries: Accrued and deferred items such as unpaid expenses or unearned revenue are adjusted to reflect true financial position.
5. Financial Statements: The final step is preparing financial statements. 

Importance of Online Accounting & Bookkeeping Services for Indian Businesses

With all the development of technology, online accounting services & online bookkeeping services are turning out to be well known particularly for small business owners and startups. These services provide no. of benefits :

1. Cost-Effective and Accessible: Online accounting solutions are oftentimes cheaper than employing a real full-time accountant. They’ve various plans for various types of business.
2. Automation: Numerous online bookkeeping services manage invoicing, payroll and tax preparation for you automatically. This removes the chance of mistakes and saves time.
3. Real Time Updates: Online services offer you live reports on your financial health so you can make educated choices in a split second.
4. Security: Reputable online accounting solutions encrypt your financial details.

Finding the Right Online Accounting Service

Consider these when selecting an online accounting service:

1. Features: Look for services such as invoices, expense tracking, payroll and tax filing.
2. Ease of Use: The platform must be very easy to make use of, even if you’ve no accounting experience.
3. Customer Support: You require dependable customer service if you encounter difficulties or questions.
4. Integration: Be sure the service integrates with various other tools you make use of, like payment processors and inventory management systems.
5. Pricing: Compare pricing plans to discover one which suits your budget and is really worth the price.

Conclusion

Understanding basic accounting and bookkeeping services is essential to operating your company effectively. The principles of accounting set a foundation for keeping correct financial information. With the growth of online accounting and online bookkeeping services, managing your finances hasn’t been easier. These services provide access, automation, low costs, real time updates & protection.

Remember that proper accounting is more than complying with laws; it is about balancing the overall position and growth of your company . It’s about understanding your business financial health and making growth based decisions. Therefore, study and put into action these accounting principles now to simplify your financial control.

FAQs

What agency administers GAAP in India?

The Institute of Chartered Accountants of India sets GAAP for India. ICAI develops accounting principles and guidelines which require financial reporting methods to meet such standards for transparency and consistency in financial statements.

From where does GAAP originate in India?

GAAP in India derives mainly from Accounting Standards (AS) released by the Institute of Chartered Accountants of India. These standards regulate the preparation and presentation of financial statements and assure they present accurate and objective views of a business’s financial situation.

Which accounting principle is followed in India?

India follows the accrual basis of accounting as the prime principle. What this means is transactions are recorded as they happen and not when cash is exchanged. This principle makes certain that financial statements show a more correct and complete picture of any business’s financial position and performance.

What standards does GAAP have in India?

The Standards of GAAP in India happen to be the Accounting standards released by the Institute of Chartered Accountants of India. These standards apply to economic reporting which includes revenue recognition, inventories valuation and financial statement presentation.

What are the golden rules of accounting in India?

Golden rules of accounting in India are:

1. Credit the sender
2. Debit the receiver, credit the giver 
3. Debit what comes in and credit what goes out (Real Account) 
4. Debit all expenses and losses, credit all incomes and gains (Nominal Account) 

These rules are the basis for recording financial transactions correctly.

Is India following IFRS or GAAP?

India adheres to an Accounting standard derived from International Financial Reporting Standards called Indian accounting Standards (Ind AS). Ind AS has been used since the accounting period 2016-17 (last revision: June 2021).