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Basic Accounting

Basic Accounting

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Published by: annegrace_ignacio on Jan 14, 2010
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Bookeeping Bookeeping is the process of recording transactions accurately and systematically in accordance with certain principles or rules

These refers to any financial event or activity which affects an organization cash transaction – a transaction which involves immediate payment credit transaction – refers to a transaction for which payment is postponed to a future date

Book-Keeping and Accounting
Book-keeping is that part of accounting which is concerned with the accurate recording of transactions. Accounting, however, involves more than bookeeping function. It includes the use of the information recorded by the bookeeping operation to produce financial reports that enable decisions to be made by the management, owners and interested parties

Purpose of Book-Keeping and Accounting
• To communicate business information to various parties (managers, investors, owners, creditors, government, etc.)

Basic Accounting Concept
1. Business Entity Concept Each business is a separate entity from its owner

2. Going Concern The business entity will continue to operate indefinitely

3. Historical Cost All transactions of a business entity are recorded at the original cost to the enterprise

4. Objectivity There must be always exist objective verifiable evidence for reporting any accounting information. The evidence that a business transaction has taken place and the details pertaining to that transaction are contained in a source document.

5. Consistency In the preparation of financial reports, the same accounting method should be applied in each accounting period

6. Conservatism Conservatism or Prudence is observed when reporting all accounting information. Cautious accounting practices are observed so that assets are neither overrated nor liabilities underrated. All losses, suffered or anticipated, are recorded for while profits should be understated rather than overstated.

7. Accounting Period The life of a business entity is divided into specified periods of time for the purpose of preparing financial reports

8. Accrual Concept Revenue is recognized when it is earned and expenses when they are incurred.

9. Matching Principle Revenue earned during an accounting period has to be matched with the expenses associated with earning that revenue

Types of Business Units
• Sole Proprietorship – a one man business • Partnership – a business formed by two people but not having more than 20 partners. • Corporation – an enterprise formed by two or more persons with a maximum of 50 people for a private limited company and no maximum limit for a public limited company

The Accounting Process
Step 1 – Document Step 2 – Journal Step 3 – Ledger Step 4 – Trial balance Step 5 – Adjustment Step 6 – Closing Account and Stock Valuation Step 7 – Financial Statement (Trading, Profit and Loss Accounts, Balance Sheet)

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