| As an entrepreneur, planning and implementing the | | | | reliable? It must be verifiable. Free from error. E.g. |
| accounting system of the business that you hope | | | | you can always look at a receipt to verify the |
| is going to make you money, it is important that | | | | amount of an expense. As you already know, |
| your accounting system must produce | | | | when you get audited, you must verify all |
| information that are going to be useful to you and | | | | transactions that occurred in your business |
| to those who are reading it. | | | | anyway. |
| How do you do this? Information that a business | | | | 4. Comparable & Consistent |
| is expected to present must be: | | | | Comparability relates to the ability of an |
| 1. Understandable. | | | | information to be compared with those of other |
| Naturally the information produced must be | | | | similar companies so that decision-makers can |
| understandable. A guideline is to provide | | | | compare 'apples to apples' not 'apples to oranges'. |
| information that people, who are willing to | | | | However, Generally Accepted Accounting |
| understand it, can understand it: professionals or | | | | Principles (GAAP) allow for certain choices of |
| nonprofessionals. As a business owner, you have | | | | different accounting methods for depreciation and |
| to think of the different accounting backgrounds | | | | inventory management. |
| of the different types of people who will be | | | | 5. Conservative |
| reading your reports and match that accordingly. | | | | This applies mostly in situations where there is |
| 2. Relevant & Material | | | | uncertainty of an outcome but you have to |
| Relevance is the capacity of information to make | | | | estimate what this outcome might be. The key is |
| a difference in a decision. It is important to report | | | | to choose the less pessimistic estimate. Of course |
| and disclose information that is relevant for | | | | this may not always be a wise decision if the |
| anyone to make a decision. Accounting | | | | chances of the less pessimistic estimate is very |
| information must also deal with things that are | | | | minute as opposed to the other choice(s). |
| significant enough to impact decisions that are | | | | ___________ |
| made by those who use your financial reports. | | | | This article was written for OrangesAndLime.com, |
| 3. Reliable | | | | to help creative individuals - artists, musicians, |
| People must depend that the figures and the | | | | designers, illustrators and entertainers - build their |
| facts printed on your financial statements are | | | | own freelance businesses. |
| true. How can you say that an information is | | | | |