The fundamental principles of financial accounting are a set of guidelines that govern how a company should manage their business accounting. To ensure consistency and accountability, all accountants shall adhere to those standards while doing their duties. Certain countries adhere to particular standards, but some of these laws are more universally understood globally. This post will go through the most basic accounting rules, which online accounting software also follows.

When you practice accounting, you must have a basic grasp of these main accounting concepts. This isn’t as simple as memorizing financial facts for an exam and then recalling it two days later. In the study of accounting, these values can be seen all over the world. Accounting software for financial services follows these to conduct the seamless accounting process for any business, small or large.

First, Let’s talk about the trends, facts, and stats for billing software and online accounting software, and then we will continue with the basic principles of financial accounting.

Implementation of Accounting Software - Moon Invoice

Implementation of Accounting Software (Source – Year Ahead Report)

According to the “Year Ahead” report conducted by in 2018, almost 57 percent of Mid-sized companies have adopted accounting software, only 1 percent fewer than big corporations. In contrast, the concept of online billing software is increasingly permeating in small firms, with 45%.

What are the 8 Fundamental Principles of Financial Accounting?

Here are some of the most widely recognized accounting standards and how they relate to the accounting software for financial services, position, and responsibilities of an accountant.

1. Principles of Conservatism

The conservatism philosophy states that any expenditure and liabilities should be reported as soon as practicable. In contrast, profits and assets should be registered only after an accountant is confident they will arise. And being an SME, you must check that your software for creating invoices is built on this fundamental or not because expenses are always crucial to a business. 

Using this idea will skew financial statements in a conservative direction, resulting in lower estimated earnings due to asset and revenue identification delays. 

2. Principle of Accrual

The accrual theory in accounting states that all expenses should be recorded in the amounts they occur instead of when cash flow is correlated with them. This theory is especially relevant in accrual accounting since it allows for creating more detailed financial records that demonstrate what occurred over time.

So, when you are operating on online accounting software – you must be aware that to record a transaction, it is not necessary to cash being paid or received.

If an entity may not adhere to the accrual concept, the resulting cash flow can cause the transaction to be artificially accelerated or delayed. 

3. Principle of Cost

The expense theory in accounting states that a company can report all equity contributions, profits, and liabilities at their initial purchasing prices. This theory says that the quantities reported cannot be modified for market value increases or inflation. 


The exemption to this rule is whether a short-term transaction in a corporation’s capital stock has had a change in market valuation. However, this exception only happens if the securities are publicly traded on one international stock market.

Well, if your accounting software for financial services is not working as per the principle of cost, then your organization’s financial statements might not be accurate as they should have been.

4. Principle of Consistency

The accounting concept that allows an organization to use the same accounting system practices and standards for publishing its financial statements is the consistency principle.

If the accuracy theory is properly and narrowly followed, there are many advantages for financial statement stakeholders. That applies to the use of small business financial reporting software. Software that follows the consistency principle will simplify things for you.

5. Principle of Economic Entity

According to the Business Entity Definition or Business Entity Principle, a business company’s operator has separate legal liabilities. According to this definition, the company must distinguish all purchases from its owners, shareholders, and other businesses.

This implies that the transactions reported in the entity accounts are just those belonging to the entity. 

For example, let us consider that you are running a cake shop. And you are picking up two cakes for your daughter’s birthday. Now, the online accounting software you are using for billing and managing the finance needs to be clear who is an entity and who is the owner to record the transaction.

6. Matching Principle

The matching theory is an accounting principle that governs how costs and receipts are recorded and recognized in financial statements.


The theory ensures that profits and liabilities in the income statement are accurately measured in the timeframe in which they were sustained. If you are using accounting software for financial services that remains the same.

When this theory is followed correctly, net profits appear in the income statement indeed and equitably. That is not due to an overestimation or underestimation of sales or expenditures.

7. Principle of Going Concern

Going concern is the term that means the entity can continue to operate shortly, usually twelve months from the operation date if the financial accounts are compiled based on a going concern. 

So, that’s a plus if your small business financial reporting software works on an ongoing concern principle.

8. Principle of Full Disclosure

The Full Disclosure Principle demands that the company publish any relevant material in its financial report. The critical theory behind this concept is that consumers of an entity’s financial statements can rely on financial statements to make decisions.

As a result, it is essential to ensure that they have access to all relevant material using accounting software for financial services.

As a result, this concept is implemented to guarantee the material reported in the entity’s financial report following accounting principles or mechanisms has been disclosed.

You should obey each accounting requirement regardless of whether the condition that occurs in your entity should be revealed or not.

Wrap Up

The Generally Accepted Accounting Principles (GAAP) are significant since they provide reporting and bookkeeping standards. No matter if you are doing an accounting process manual or using small business finance reporting software.

Digitalization is overtaking many manual processes in every business segment, and accounting is one of them. The accounting software for financial services is created as per the clients’ demand; Which makes the business accounting process smoother and more superficial.

If you are in the process of buying an online accounting software – make sure that the service provider or software firm has software that complies with all the fundamental principles.

Create an invoice for free online with Moon Invoice. Contact us straight away to schedule a demo or drop your business requirements at or +1-805-491-9393.