The reliability principle is used in accounting to ensure that information is correct, relevant, and comprehensive. Here’s what you need to know about creating a reliable accounting system.
Key takeaways
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What is the reliability principle?
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Characteristics of reliable accounting software
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Keeping track of the right numbers
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Why work with Franco Blueprint?
Keeping tabs on your financials is one of the most important parts of running a business. The right numbers give you objective visibility into how you’re doing at a given time, help you make predictions for the future, and provide accurate information to third parties.
For your business’s accounting system to be effective, you must be able to rely on all the information it provides and pull reports whenever needed. Without the right numbers, reports won’t be correct, leading to inaccurate projections and sometimes even losing prospects.
Ensuring reliability requires understanding what it is and why it’s important, then using the right accounting software and tracking the right numbers. We’ll be walking through the accounting reliability principle, features of reliable accounting software, and some of the top accounting metrics you need to track.
What is the reliability principle in accounting?
The reliability principle is an accounting rule that essentially states that records and statements must always be accurate and relevant to be useful. Otherwise, internal managers, stakeholders, third-party auditors, and others won’t have an accurate picture of the business and its financial situation.
Reliable accounting data can be checked and verified with actual proof in records and transactions. These could be bank statements, invoices, receipts, or other documents. When some of these records are omitted, it could create an ambiguous or deceptive picture of the business’s position, so all pertinent records need to be included.
Reliable information must be accurate and free of errors or misleading information, but it also needs to be relevant. This means it applies to the task at hand, it’s important, and it’s timely. These factors must be combined so that the information can be used for real-time decision making as well as long-term planning.
Characteristics of reliable accounting software
One way to ensure reliability is to take advantage of accounting software that modern technology makes possible with automation techniques. Let’s walk through some of the features your accounting system needs to have for continuous, reliable information.
1. Dashboards and reports
You first want to know exactly how you’ll be able to view and track information within the system. Are all reports easily accessible? Can you view all information in one place, like a dashboard with charts and graphs? It’s helpful to customize what you want to see at a given time. And you should be able to pull reports from the system whenever you need them.
2. Integration with current systems
Your business needs accounting software that will integrate well with your other systems, not just financial systems. Think about how each business function and process is currently managed. Which software will align well with these other programs? Make sure any software you use is compatible by checking requirements and working with other departments on the integration.
3. Support
What is the software company’s approach to technical support? Is there a help desk or online help center where you can find instant answers to problems? What kind of demo or walk-through does the company offer? To be a reliable accounting process, you need to know what support is available, so you aren’t spending time trying to resolve small issues or bugs.
4. Security
Accounting information is sensitive, and you need software that prioritizes security. Good software will allow you to grant specific users access to more sensitive information or administrator abilities, and others a view-only type of access. A good way to ensure reliable accounting information is to restrict access and editing capabilities to only those who need them to do their jobs.
5. Scalability
Choose a system that allows you to scale your usage as your business grows. This requires flexibility with your plan and the freedom to upgrade as needed. Part of a reliable accounting system is being able to predict future growth, and your software needs to grow right along with you.
Keeping track of the right numbers
When creating a reliable accounting system, you need to know which numbers are most important and relevant to track and present. Key performance indicators (KPIs) for your system will depend on your primary goal or goals at a given time. But, let’s look at a few KPIs that will give you the best view of your financials in general.
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Net profit margin: What profit you’re making for every sales dollar made
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Operating profit margin: Your leftover revenue after operational costs
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Gross profit margin: What percentage of revenue covers production costs
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Revenue growth rate: Whether sales numbers are increasing
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Return on investment (ROI): Whether specific investments are paying off
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Client profitability: Profit made from serving a client over time
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Invoice turnaround time: Time it takes for an invoice to be processed
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Working capital: Current assets for short-term needs
These are just a few of the many important KPIs for your business. Including these in your reports will help you create a more reliable, complete accounting system. You need dependable accounting software that will always provide you these numbers reliably and consistently.
Why work with Franco Blueprint?
Franco Blueprint helps business leaders improve their accounting systems, taking advantage of automation techniques to ensure accuracy and efficiency. We make sure that companies implement the right compliance strategies and that accounting systems are integrated with other company functions.
Our Blueprint4success accounting model helps you manage priorities, increase profits, and minimize taxes. Learn more about our comprehensive model and other ways we can help you with accounting by scheduling a free consultation with the Franco Blueprint team.