Great Learning : - Basics of accounting
Hello Friends,
Good Morning,
Today we are going to discuss about the basic of accounting. Here we will learn about the,
- Accounting Basics
-Accounting principles
- Rules and concept of accounting equation
-Accounting cycle and role of it
-Bouble entry book keeping method
-Basic accounting concepts
-Process of creating a trail balance and financial statements
Let's undersdtand the basic of accounting :-
Q 1. What is accouinting ?
A - Accounting is the systematic recording, reporting and analysis of financial transactions of a business.
Q 2. What is accouinting period ?
A - Accounting period refers to the length of time covered by the fionancial statements. The length of time can be quarter covering three months, a calander year.
Q 3. What are the accouinting Principles?
A - Accounting Principles are broad rules adopted by accounting profession as guidance for use in recording and reporting affaires and activities of a business to interested parties.
Accouinting concepts are used while recording financial transactions.
Accounting conventions are used while reporting or presentation of financial statements.
Accounting Principles
Accounting principles are the rules and guidelines that company must follow in reporting all accounts and financial data.
the purpose of following an accounting principle is to able to communicate economic information in an language , that is acceptable and understandable to one business to another.
Accounting Principles and guidelines
Here are some accounting priciples and guidelines lisetd under US GAAP(Generally Accepted Accounting Principles) these are as follow : -
1. accrual principle - it is an accounting concept that require accounting transaction to be recorded in the time period in which they occure, regardless of time period, when the actual cash flows of the transactions are received or paid. the main idea is that financial events are most properly recognised by matching revenue against expenses when transaction such as sale occured rather than the actual payment for the transaction received.
2.consevatism principle - in situations, where there are two acceptable solution for reporting an item, the accountants should play its safe by chosse the less favourable outcome. this concept allow accountants to anticipate future losses rather than future gains.
3.consistency principle - the consistency principle states that once you decide on an accounting method or principle to use in your business. You need to stik with and follow this mathod throughout your accounting periods.
4.cost principle - A business should record their assets, liabilities and equity at the original cost at which they were bought or sold. the real value may change over time ( e.g. Depreciation of assets/inflation) but this is not rteflacted for reporting purposes.
5. economic entity principle - the transaction of a busines should be kept and trated seperately to that of its owners and other businesses.
6.full disclosure principle - any important information that may impact the reader's understanding of a business's financila statements should be disclosed or included alongside to the statement.
7.going concern principle - the going concern principle that assumes that the business will continue to exist and operate in foreseeable future and not liquidate. this allows the business to defer some prepaid expenses (Accrued) to future accounting period, rather than recognise them all the once.
8. matching principle - the concept that each revenue recorded should be matched and recorded with all the related expenses, at the same time. specifically in the accrual accunting, the matching principle states that for every debit there should be a credit.
9.materiality principle - an item is considered material if it could effect to and influance the decisions of a resonable individual reading that may compnay's fionancial statements. Materiality priciples states that accountants must be sure to include and report all material items in the financial statements.
10.monetary unit principle -Business should record transactions that can be expressed in terms of stable unit of currency.
11.reliability principle - The reliability principle is used as a guideline in determining which financial information should be presented in the accounts of business.
12.revenue recognition principle - companies should record their revenue when it is recognised , or it is the same time period of when it was accrued.
13.time period principles - a business should report their financial statements (Income statements/Balance sheet) appropriate to a specific time period.
Accounting concepts and conventions :-
Accounting concepts are :-
1. Dual aspect concept
2. entity concept,
3. cost concept,
4. Money measurement concept,
5. matching concept,
6. Revenue recognition concept,
7.Going concern concept,
8. Period concept
Accounting Conventions:-
1. conventions of full disclosure,
2. Conventions of consistency,
3.convention of conservatism,
4. convention of materiality
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