Basics of accounting

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Definitions 1. Recording, classifying, summarising business transactions and interpreting the results thereof.

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Accounting concepts 1. Entity 2. Money measurement 6. Accruals 4. Cost 3. Going-concern 5. Réalisation 7. Matching 8. Periodicity 9. Consistency 10. Conservatisme

The affairs of the business are distinct from the personal affairs of its owner. The business is an independent ENTITY. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

Records are kept in monetary terms, and only matters capable of being expressed in monetary terms are reflected in the books. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

The business is assumed to have a continuing and indefinite life. The business IS NOT on the verge of extinction. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

Accountants compute the value of an asset by reference to its acquisition cost, AND NOT by reference to its expected future benefits. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

Any change in the value of an asset may only be recognized at the moment the firm REALIZES it, or disposes of that asset. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. réalisation 7. Matching 8. Periodicity 9. Consistency 10. conservatism

The recognition of an expense (or revenue) and the related liability (or asset) results from an accounting EVENT , and is not necessarily signaled by a cash transaction. SFAC #1: Accrual accounting attempts to record the financial effects on an enterprise of transactions and other events and circumstances that have cash consequences for the enterprise in the periods in which these transactions, etc… occur rather than only in the periods when cash is received or paid. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

Expenses should be recognized in the same accounting period during which the firm has recognized the associated revenues. Revenues and expenses resulting from the same transactions (or events, circumstances, etc…) should be recognized simultaneously. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

Accounting reports must be prepared for fixed, and relatively short, periods of time. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

Like transactions should be treated the same way in consecutive periods. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. conservatism

(1) The accountant should not anticipate profit, and should provide for all possible losses; (2) Faced with several methods of valuing an asset, the accountant should choose that which leads to the lesser value. ,[object Object],1. Entity 2. money measurement 6. Accruals 4. Cost 3. Going-concern 5. realization 7. Matching 8. Periodicity 9. Consistency 10. Conservatisme

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The ruling of the journal is as follows:- Journal Date Particular LF Debit Rs [Dr] Credit Rs [Cr] Year Month Date Name of account to be debited. To, Name of account to be credited. [Narration]

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Ledger Format Date Particular F Amount Date Particular F Amount To, Name of credit A/c Rs By, Name of debit A/c Rs

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Sl No Particulars LF Debit Balance Rs Credit Balance Rs

Basics of accounting

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Basics of accounting