Bookkeeping Principles in Dubai

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It has been noted that there is some confusion among individuals in the Emirates regarding the recent changes made to the format and design of financial record management. Certain accounting standards are utilized on a global scale.

It is important to familiarize ourselves with the recommended standards for creating financial statements and managing bookkeeping journals.

Companies use various regulations and formats to handle their accounting records. In this regard, two commonly utilized principles for bookkeeping are International Financial Reporting Standards (IFS) and Generally Accepted Accounting Principles (GAAP).

Let us talk about them in detail:

International Financial Reporting Standards (IFS)

The International Accounting Standards Board (IASB) has introduced the International Financial Reporting Standards (IFRS) as the worldwide standard for conducting financial management activities and tasks. This framework offers a comprehensive structure for accountants to effectively maintain their financial records. The primary goal of these principles is to create a shared language that can be easily understood by accounting firms and business professionals not only in Dubai but also across the globe. IFRS is specifically designed to address a wide range of transactions and events associated with financial reporting.

Generally Accepted Accounting Principles (GAAP)

Generally Accepted Accounting Principles, serves as the foundational framework for accounting practices, and it is both utilized and endorsed by the Financial Accounting Standards Board (FASB). This comprehensive set of rules and principles encompasses all the necessary guidelines for navigating the legal intricacies and complexities of corporate accounting. The implementation of GAAP demands thorough accounting services, as it is employed to manage various aspects, including revenue recognition, balance sheets, and the accurate classification of outstanding items and shared estimates for public disclosure.

IFS as Mandatory Accounting Standards in Dubai, UAE

The Central Bank of the UAE has made it compulsory for businesses to adhere to the International Financial Reporting Standards (IFS) as stipulated by the Securities and Commodities Authority (SCA). This requirement applies to all companies listed on prominent stock exchanges such as NASDAQ Dubai (formerly known as DIFX), Abu Dhabi Securities Exchange (ADX), or Dubai Financial Market (DFM), necessitating them to maintain their accounting records in accordance with IFS. As a result, all companies that have been legally listed on the Abu Dhabi Securities Exchange since 2003 are obligated to provide IFS-compliant financial statements.

While it is not obligatory for businesses not listed on the mentioned exchanges, it is strongly recommended to promptly adopt IFS to ensure transparency and prevent potential complications. Historically, the UAE lacked predefined accounting standards for businesses. However, the government has recently encouraged business professionals to embrace IFS for their accounting activities and tasks. At times, individuals engaged in business may find it challenging to determine the most suitable financial regulations for compliance.

Accounting is a crucial aspect for all organizations, regardless of their location, including the United Arab Emirates. It encompasses the processes of capturing, classifying, recording, and verifying financial information. Accounting also empowers companies to monitor the flow of funds, ascertain the nature of their liabilities, and understand their overall financial value. Therefore, every business operating in the UAE is expected to adopt the IFS methodology for their financial reporting and compliance.

To initiate the accounting process in Dubai, the following essential documents are required:

1. Invoice for the purchase of any company asset

2. Company's legal documents, including:

- Trade license

- Memorandum and Articles of Association

- Certificate of incorporation

- Share certificates

3. Petty Cash sheet (if maintained)

4. Office Rental Invoice and Contract

5. Credit card statements (if applicable)

6. Deposit slips for payments made to Rent, DEWA (Dubai Electricity and Water Authority), or other utilities

7. Bank statements

8. Sales and purchase invoices

9. Invoices for expenses related to the company, such as office expenses, utilities, telephone bills, and more

10. Invoices for expenses related to company incorporation.

These documents are crucial for maintaining accurate financial records and complying with accounting and regulatory requirements in Dubai.

We offer a wide range of accounting services in Dubai to help businesses with financial tasks. Following are the accounting services that is listed below.

• Formulation of Financial statement

• Maintaining supplier invoice

• Forecasting in connection with planning

• Accounting software related installation and maintenance

• Inventory valuation and authentication

• Daily account management

• Setting up Accrual plan

• Preparing consolidated financial statement

• Conducting financial projection

• Gathering, maintenance and evaluation of fixed assets

Bookkeeping involves the systematic recording of an organization's financial transactions in appropriate account books. Many websites provide definitions of Bookkeeping and Accounting that often seem interchangeable. While these two processes may seem similar, they possess distinct differences. In essence, Bookkeeping serves as a component or facet of the broader field of accounting. Accounting encompasses a more comprehensive and analytically focused subject matter, demanding a deeper understanding of its scope and relevance.

Bookkeeping professionals employ either physical ledger books or specialized software to meticulously record monetary transactions. To facilitate a better grasp of the fundamental concepts and disparities between Accounting and Bookkeeping, the Frank & Frank team has assembled an Evaluation table. I encourage you to review this table for further clarity on the distinctions between these financial practices.

1. Perform Financial Evaluation: Bookkeeping over a specific period enables businesses to compare various financial aspects. This evaluation aids in controlling and optimizing expenditures for the benefit of the business.
   

2. Filing Tax Returns: Methodical bookkeeping simplifies the process of filing tax returns and can help identify tax exemption opportunities.
   

3. Budget Evaluation: Bookkeeping plays a pivotal role in assessing budget projections against actual outcomes. This analysis reveals areas of shortfall, enabling necessary adjustments to be made to the budget.
   

4. Understand the financial status: Recording financial transactions is the initial step, allowing a business to comprehend its financial standing better. This practice provides insights into both expenses and income, facilitating effective management.
   

5. Check financial misappropriations: Systematic bookkeeping serves as a preventive measure against financial fraud and mismanagement. It significantly reduces the risk of scenarios such as cheque bounce due to insufficient funds.

• Creating Sales Invoices

• Generating Cash Flow Statements

• Compiling Profit and Loss Statements

• Keeping Accurate Accruals and Ledgers

• Managing Assets and Equipment Ledgers

• Overseeing Accounts Payable and Accounts Receivable

• Conducting Trial Balance Analysis

• Recording Financial Transactions in Accordance with IFRS

The UAE has instituted its own set of accounting principles known as GAAP (Generally Accepted Accounting Principles), which are applicable to all government entities and state-owned companies in the UAE. These standards are overseen and upheld by the International Federation of Accountants (IFAC).

The following key principles define the accounting standards in the UAE:

1. Revenue Recognition: Revenue is recognized when it is earned.

2. Income Recognition: Income is recognized when it becomes realizable or realized.

3. Expense Recognition: Expenses are recognized when they are incurred.

In terms of measuring assets and liabilities, it is essential to value them at their fair market value, with the exception of finance leases and instruments, which are evaluated using the effective interest rates at amortized cost.

Starting and managing your own business in Dubai can be an exciting challenge, but it can also present complexities when it comes to bookkeeping and accounting. To ensure the smooth and compliant operation of your business, here are five essential policies to adhere to: Supporting Documents

Additional supporting documents required for businesses not registered for VAT include bank statements, invoices, contracts, and credit notes. It's important to note that copies of these documents are not acceptable. Therefore, it is crucial to maintain these aforementioned documents in their original, unaltered form. This ensures the integrity and authenticity of the financial records and supports compliance with accounting and tax regulations. VAT Returns

The Value Added Tax (VAT) system became mandatory for all businesses in the UAE on January 1st, 2018. This tax applies to all companies operating within the UAE, irrespective of whether their services are local or international in scope.

To determine whether your business needs to register for VAT, it must meet the eligibility criteria. Handling taxes can be a complex endeavor in Dubai, which underscores the importance of adopting a VAT Return Policy that not only aligns with industry best practices but also offers a systematic and coherent approach to managing VAT obligations for your business. Bank Transactions

For all bank transactions, it is imperative to maintain a bank statement as supporting evidence. This statement should include comprehensive information such as the transaction amount, transaction nature, and essential details like the name and address of the business receiving the funds, along with the transaction date. Companies have the flexibility to store electronic copies of these statements, which proves valuable in ensuring the accurate preparation of profit and loss accounts as well as annual budgets.

Record Keeping Policy

In adherence to UAE Federal Law, it is obligatory to retain your financial statements and records, with a minimum retention period of five years. Nevertheless, the Ministry of Finance strongly recommends retaining these records for a duration of ten years to demonstrate tax compliance effectively.

Cash Receipts

Receipts serve as crucial evidence for transactions valued up to AED 1,000. These receipts should encompass key information such as the issuance date, the signature of the person issuing the receipt, and recipient details. It is imperative that receipts are issued in the name of the business and include essential details like the nature and amount of the transaction. This level of detail enhances accounting accuracy and serves as compelling proof of these transactions.

Frank & Frank boasts a team of seasoned professionals highly skilled in delivering top-notch accounting and bookkeeping services throughout Dubai and the UAE. Our adept accounting and bookkeeping consultants are well-trained and possess the necessary qualifications to expertly manage various financial tasks for a wide range of companies across the Emirates. By relieving businesses of the burden of recruiting and overseeing an in-house accounting team, we enable them to focus more time and resources on their core business priorities. For all your Accounting and Bookkeeping needs in Dubai and the UAE, don't hesitate to reach out to our consultants today.