Accounting is the language of business
To do your business accounting correctly, you need to follow certain accepted principles that ensure consistency for professionals such as bankers and tax preparers. These include the economic entity assumption, which means that your business has a financial identity separate from your financial identity as an individual, with its own assets, legal status and requirement to prepare and submit tax forms. Accounting principles assume that your business is using dollars as currency and that you’re not withholding any information that would be relevant to a tax agency or a banker reviewing your company books for a loan. Reading through a list of accounting principles can seem daunting and even mind-numbing, but many of these principles are just formal statements of common sense ideas that your business accounting already uses.