Basic accounting concepts

Your accountant can set you up with many other key indicators which will become the instrument panel by which you guide and direct your enterprise. When the company pays its invoice for the product purchased on credit, the bookkeeper debits the accounts payable account to reflect that the company paid its liability.

Monetary Unit This principle assumes that transactions should be recorded in a single currency and exchange rate. On the other hand loss due to the sale of machinery or any assets less than the market value.

Based on this concept, revenue expenditure and capital expenditure are segregated. As mentioned in the summary of PART 1, the broad concept of accounting consists of two main elements.

This is to show the true picture of the business financial performance. Define the role, function and purpose of accounting. This is to show the true picture of the business financial performance.

Hence, they still owe to the business.

Basic Accounting Principles and Concepts

Continuing with the Basic accounting concepts, when the customer pays his bill for the products purchased, the bookkeeper credits the accounts receivable account to reflect the payment received and decrease the value of the account.

Matching Principle — When revenue is recorded all related expenses are recorded in the same period in order to provide an accurate picture of the profitability of the business.

Accrual This principle requires the company to record the revenue or income when it is actually earned. Special Features of Business Transactions are as under: We book the value of assets on the cost basis, not on the net realizable value or market value of the assets based on the assumption that a business unit is a going concern.

Accounting is more results oriented i. Accrual This principle requires that revenue should be recorded in the period it is earned, regardless of the time the cash is received. Let us take an example to understand the Matching Concept clearly.

Time Period This principle specifies a particular interval of time for which the financial reports are prepared. Summary — Define Accounting We can see from these definitions that accounting can be divided into two main elements: The main financial statements used by decision makers are the balance sheet, income statement and cash flow statement.

Entrepreneurs by nature rely heavily on their innovative insights but the successful ones also know how and when to apply business acumen in their decisions via the reality checks and the more objective results provided by the accounting function.

Sincerity According to this principle, the auditors should prepare the financial reports in order to project the real financial position of the company rather than fabricating facts.

Expense should be recognized and recorded at the time it is incurred, regardless of the time that cash is paid. T-accounts also are useful when recording adjusting entries, which include accruals and deferrals made at the end of a period.

At the completion of this training session, you will be able to: Due to these guidelines of GAAP, consistency in the methods of preparations of financial accounts of the companies has been maintained.

Accountants use available data to measure the results of the activities of an organization.

Basic Accounting Course

When a business unit is passing through severe financial crisis and going to wind up. Historical Cost All business resources acquired should be valued and recorded based on the actual cash equivalent or original cost of acquisition, not the prevailing market value or future value. Generally Accepted Accounting Principles Accountants are required to adhere to a set of guidelines and detailed practices in accounting.

Creditors are the liability or risk of the firm. The two roles are vital parts of a whole and whilst they can be combined into one role they are generally separated due to cost efficiencies and lack of specialised technical skills. A sum received from the sale of assets or borrowing loan is not revenue.

They know that the real opportunity that emerges if often times not the primary one that they set out to exploit. Your liabilities could include a car loan, a student loan, a mortgage, your investment margin account, or anything else which you must pay back at some time.

When we offer goods on credit, the purchaser is known as the debtor. Liabilities is the group of things on which you owe money. Full Disclosure Principle — All non-standard information or notes are disclosed in the financial statements to allow a reference point.

And … Although I used the T account to illustrate how debits and credits work, most accountants use the format shown on this page:Plain English accounting targeting the basic accounting concepts that define accounting Accounting is an ancient art indeed, with archaeological evidence identifying an accounting system being widely used in the Near East from about 8, BC to.

10 Accounting Concepts - Download as Word Doc .doc /.docx), PDF File .pdf), Text File .txt) or read online. Scribd is the world's largest social reading and publishing site.

Search Guidelines on Basic Accounting Principles and Concepts GAAP, is the framework and guidelines of the accounting profession.

30 Basic Accounting Terms, Acronyms and Abbreviations Students Should Know

Its purpose is to standardise the accounting concepts, principles and  · Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities[1][2] such as businesses and corporations.

The modern field was established by the Italian mathematician Luca Pacioli in [3] Accounting, which has been called the "language of business",[4] measures the results of History · Etymology · Topics · Organizations · Education and  · Basic Accounting Concepts Chapter Exam Instructions.

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if FAQ Basic Accounting Concepts This e-book is a guide and reference resource for students of accounting (and its subsidiary, bookkeeping).

In simple language, it explains the basic accounting concepts and why they are important in the process and application of accounting and

Basic accounting concepts
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