Consistency and Accuracy in Accounting: Ensuring the Integrity of the Accounting Equation

Accounting Integrity: Maintaining Precision and Reliability

Discover the crucial importance of consistency and accuracy in accounting, and learn how they safeguard the integrity of the accounting equation. Explore best practices, tips, and insights to maintain financial precision.

For practically every sort of enterprise, performing fast and spot-on accounting is a matter of the greatest importance.

When your books are well managed, they are a window into the firm’s financial standing. The numbers give a picture—whether you are swimming, sinking, or barely treading water. Equipped with this insight, business leaders are better positioned to make prudent decisions about their company’s future direction and initiatives.

But, when the numbers are not right you are forced to rely on faulty data to guide your decisions. That is something akin to piloting a ship unquestioningly without a compass, guide, or even the stars in the sky.

If you want to do well, ensuring the reliability of accounting is paramount. Today, we will look at actionable methods you can deploy to improve your bookkeeping.

Record Every Expense

As a budding business, you must categorize expenses alongside cash flow tracking. Doing so improves visibility and positions the business to increase the taxable write-offs and credits.

Naturally, how companies document these outlays depends on your accounting style.

With accrual accounting, money is recorded when it is made—after the customer has gotten their goods or service—not when it is paid for. As a consequence, the books will cover accounts receivable, that need to be paid. This is due to the fact that you have a more spot-on understanding of the company’s profitability and cash flow.

With cash-based accounting, you only record transactions that have been paid out or received.

While a cash-based method may work early on, it is better to opt for an accrual method as you grow. Doing so offers more accurate long-term visibility related to the company’s financial health.

Save Your Receipts

This should go without saying. However, it bears repeating—accurate bookkeeping is hand in glove with rigorous documentation. As the International Revenue Service notes:

“It is important to keep these bits of data because they support the entries in your logs and on your tax filings. You should keep them in a decent fashion and in a safe area. For instance, organize them by month and year and type of income or expense.”

What records should companies hold onto?

Important things you should keep include:

  • Purchases
  • Business related expenses
  • Total receipts
  • Travel, entertainment, and logistics expenses
  • Assets
  • Work taxes

Fortunately, today, top-quality accounting technology can scan, upload, and automatically categorize a business’s relevant receipts.

Use Accounting Software

If you still do manual-based accounting. Then this is the right time to change is now. Even rudimentary Excel spreadsheets need more sophistication than modern businesses require from their accounting team.

Manual data entry could be more efficient, prone to human error, and, most crucially, it grants precious little hold and visibility to the firm’s financial leaders.

Such a method drains time and resources, contributes to employee dissatisfaction, and jeopardizes regulatory compliance.

But, as mentioned, modern accounting technologies are designed to suit businesses, both big and small.

The top options are Intuit QuickBooks, Netsuit by Oracle, ZoHo Books Accounting Software, and lastly one can GoDaddy Online Bookkeeping.

Keep Personal and Business Expenditures Separate

In the early phases of a company’s lifecycle, there will often be a bleedover between the owner’s finances and the company’s. But this distorts the financial waters, making it much more difficult to gauge the company’s status accurately.

While comingling of money may provide worth early on, you will save yourself from major accounting problems if you pull the bandaid off this very moment and maintain two separate accounts.

By setting up an account that is entirely dedicated to the company, you can:

  • Better track your company cash flow – This makes it easier to make a picture of business cash flow, manage a balance sheet, and conduct financial forecasting.
  • Increase accounting efficiency – When tax time rolls around, it will be much smoother to identify and provide the right financial data if you do not have to sort between the varied outlays.
  • Protect you from legal issues – If your company’s financial documents are inaccurate, that is then in a bad way. These things impact tax filing, which could expose the business to audits. Furthermore, if you are working as an LLC or corporation, the mingling of business and personal finances could end your limited liability status.

Back-Up Your Data

What would occur if a natural disaster struck or a hacker accessed your network?

Would your financial and accounting information be safe?

With cyberattacks on the increase. Backing up your data—ideally to an ultra-secure cloud—is just smart stuff. It is a way you can protect any business from potential calamity.

By maintaining copies of all of the financial documents. Thus, you can sleep soundly with full confidence that your records are secure.

Outsource Your Accounting

Every entity reaches a point in its growth where the accounting task becomes too large and critical to be handled by an amateur.

Eventually, you will have to pay a professional whose only job involves updating the books and making sure that the financial records are accurate and current.

While you might be able to hire an in-house accountant. If you do so, it tends to be super expensive. To begin with, this entails a lengthy hiring headache. This would include interviewing, onboarding, and training. Also, you will have to cover their benefits in addition to paying a salary.

These inherent expenses are why many growing companies prefer to outsource their accounting to specialists who are custom-assigned to the task based on their ability and previous experience.

The Accounting Equation, Explained

What do we mean by the Accounting Equation?

This thing called an accounting equation shows how a company’s holdings, liabilities, and equity are interconnected, Also how a change in one normally results in a change to a different one. In the accounting equation, holdings are equal to liabilities plus equity. 

You can find a company’s equity, assets, and liabilities on a few key financial metrics. These have the balance sheet and the income document. These financial papers give a quick overview of the company’s financial position. The accounting equation ensures the balance sheet is balanced, showing that transactions are recorded accurately. 

Who Uses the Accounting Equation?

Accountants and people part of a company’s financial team are the main users of the accounting equation. Understanding how to use the formula is crucial for accountants due to the fact that it is a quick way to see that transactions are recorded correctly.  

Components of the Accounting Equation


Now, what is an? An asset is anything a company owns. These assets typically hold some real economic value and can be liquified (turned into dirhams in the future. However, some assets are less saleable than others, making these harder to convert to money. For example, inventory is super liquid — the company can sell it for money at any moment. Real estate, though, is less easily sold — selling for money is time-consuming and, at times, difficult. These things are dependent on the market. 

Some examples of assets include: 

  • Money
  • Prepaid expenses
  • Plant and machinery
  • Inventory 
  • Real estate or property


These are the opposite of assets. Liabilities are amounts of money that the company has to others. At times, liabilities are called obligations — the business has an obligation to make payments on debt or mortgages or risk hurting to their credit and business. 

Some instances of liabilities include: 

  • Deferred revenue
  • Accounts payable (funds owed to lenders or customers)
  • Loan payouts 
  • Mortgages
  • Last but not least, Accrued expenses


There are some ways to look at equity. One of these is to consider equity as any holdings which are left over after deducting all liabilities of the business. In fact, the equation for figuring out how much equity a business has is subtracting the company’s liabilities from its assets. 

However, equity can also be considered investments into the company by founders, owners, public shareholders, or customers buying products, leading to higher revenue. 

Some examples of equity include: 

  • Owner contributions
  • Net profits
  • Investments from shareholders

What Is the Double-Entry Accounting System?

The accounting equation depends on a double-entry accounting system. In this kind of bookkeeping, which is a double-entry accounting system, every deal affects at least two or sometimes accounts. For instance, if a company buys a $2,000 piece of equipment on credit or a loan, that $2,000 is an increase in liabilities (the company must pay it back) and assets. 

These two parts of a transaction are debit (DR) and the second is credit (CR). So, going for a business loan will increase liabilities (credit), spending power, and assets (debit). Conversely, lowering liabilities by paying off a loan or selling a property will positively and negatively affect assets: the stolen or one that was lost as an asset is deducted. However, the increased spending power is a positive asset change. 

Showing You Know the Accounting Equation on Resumes

When using the equation, you can use your cover letter to detail other experiences. For example, you can discuss checking that the books were good for a friend or family member’s small business. 

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