The information in accounting should allow business managers to identify, measure, classify, record, analyze and evaluate all the operations and activities of the organization.
People who have a business in which they provide services, have a production company or carry out any commercial activity must keep a continuous record of their economic activity, which is why it is necessary to implement a type of guideline that allows them have the information necessary for the evaluation of your entity.
The accounting information must serve essentially to:
- Know the resources, obligations and results of the operations of the company Support its users in the planning, organization and administration of business activity Evaluate the management of the administrators Make short and long-term decisions Establish obligations with the state Establish control operations Evaluate the company's social impact.
Accounting information must have certain types of qualities that satisfy the needs of users, it must be understandable, useful, clear, pertinent, reliable, timely, neutral, verifiable, comparable and must faithfully represent the economic facts of the company.
Important
The economic facts must be documented by means of internal or external origin duly dated and authorized by those responsible for their preparation.
Basic standards that contain accounting information:
Economic entity: This is the company, it has to do with economic activity organized as a unit, with respect to which resources are controlled. It must be distinguished and defined as an entity different from the others.
Continuity: The company must specify the duration of operation and operation, if not, it must be expressed in the notes. An entity can close when:
- You get continuous losses, deficiencies in working capital or negative cash flows. You fail to comply with obligations, you cannot access credit and constant refinancing. You are imposed legal sanctions, strikes or natural unforeseen events.
Unit of measurement: All resources and economic events must be expressed in the same unit of measurement understood as the functional currency of each country in which the company operates.
Period: The company must prepare financial statements during its existence. According to legal provisions, entities must present this information at least once a year.
Measurement and Valuation: All economic facts must be quantified in the unit of measurement and according to the legal provisions of each country, establish the valuation criteria, in this case we have:
- The historical value is the one that represents the original amount consumed at the time of the realization of an economic event.The current or replacement value is the one that represents the amount in cash or its equivalent, which would be consumed to replace an asset or required to settle an obligation at present. The realization or market value is the one that represents the amount in cash or its equivalent, in which an asset is expected to be converted or a liability settled. The present or discounted value is the one that represents the current amount of net inflows or outflows that an asset or liability would generate, once its future value has been discounted at the agreed rate.
Financial statements are the primary means of supplying accounting information to those who do not have access to a company's records.
Essence over form: Economic facts must be recognized in accordance with their essence or economic reality and not only in their legal form.
Realization: Only realized economic facts can be recognized. This means that the fact can be verified, as a consequence of past transactions or events in which there will be a change in resources or an economic sacrifice is presented.
Association: Costs and expenses should be associated with the income of each period, since these are what really give the certainty of the benefits or economic sacrifices.
Maintenance of equity: It is understood that the company obtains profits from its operation, which is why an evaluation of the financial equity (contributed) and the physical equity (operational) must be made.
Full disclosure: The economic entity must fully report all the information provided by the economic activity so that it is correctly evaluated and analyzed in order to specify the financial situation, changes in equity, the result of operations and the capacity to generate positive cash flows.
Relative importance or materiality: An economic fact is considered material when its knowledge or ignorance can substantially alter the decisions of the users of the information. When preparing the financial statements, materiality should be determined with the relationship it has with total assets, current assets, total liabilities, current liabilities, working capital, equity or results for the year, as appropriate.
Prudence: When a realized economic event cannot be measured reliably and verifiably, the option that is least likely to overestimate assets and income, or underestimate liabilities and expenses should be chosen.
Practice of the activity: In any case, seeking to satisfy the qualities of the information, the accounting should be designed taking into account the limitations imposed by the characteristics and practices of each activity.
NOTE: This article is based on the provisions given in Decree 2649 of December 1993, which regulates the accounting standards and the information generated for the financial consolidation of companies in Colombia. Although laws may change from one country to another, the regulations are based on the same generally accepted principles for the entire accounting profession.
