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Accounting Principles

Accounting Principles

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Published by: Divya Bhatia on Apr 19, 2012
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Accounting Principles 1) Accounting methods - Cash based or Accrual based (diff and applications

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Accounting's Key Activities Purpose: Use this job aid to review the key activities that form the core of accounting. .

Before transactions can be recorded:   they're analyzed and classified to determine which accounts are affected. liabilities. For this reason they are sometimes referred to as T-accounts. Therefore each transaction is recorded twice in this system. and reporting accounting information. Knowledge of these activities will help you understand and analyze the information presented in the financial statements. The three most often prepared financial statements are:    Balance Sheet – Communicates the business's financial position at a certain point in time. which account will be credited and which will be debited) Journals and ledgers are used to record transactions. Trial balances must be achieved before financial statements can be prepared. There are two systems in practice to record transactions: single entry and double entry bookkeeping. Every transaction affects two accounts. who use the information to make business decisions. Most businesses use double entry bookkeeping because it provides a more complete and accurate picture of the financial position of a company. one as a debit and the other as a credit. accounting consists of three activities – identifying. Transactions are recorded in the journal first. Accounts have a debit side represented in the left column and a credit side represented in the right column. When a transaction takes place it impacts at least two different accounts. one as a debit and the other as a credit. Accounting's Key Activities Identify transactions Record transactions For an economic activity to be considered a transaction it must be possible to express it in monetary terms. Some transactions may affect more than two accounts. but their total credit and debit totals always match. The accounting data produced is used to prepare financial statements that communicate an organization's financial position. The double entry bookkeeping system represents the two-fold effect of each transaction. and then posted to the relevant accounts in the ledger. and equity at the end of the financial period Income Statement – Reports profit or losses as the difference between revenues and expenses during a specified accounting period Cash Flow Statement – Provides historical information on the cash flow in and out of a business during a specified accounting period These statements are shared with internal and external stakeholders. and it's determined how the accounts are affected (for example. or journalized. including assets.At its root. . recording. Report transactions Financial statements are prepared based on the accounting data.

and principles that make up basic accounting practices and help establish accounting as a common business language.Assumptions. and principles. Assumptions. Conventions. and Principles Assumptions Separate Entity – Dictates that the finances of the business are completely independent of the personal finances of any of the owners or stakeholders. Cost – The practice used by accountants to deal with the depreciation of a company's assets. or language. This is done to prevent the overstatement of income in a period. meaning that the company's assets will continue to be used in the foreseeable future. . Going Concern – The premise that a company will continue to operate. country. conventions. Together they allow accountants to prepare comparable financial statements regardless of industry. Accounting provides a common ground and language through the use of certain assumptions. Fixed Time Period – Sets the expectation that financial statements will be prepared for a specific time period with a defined beginning and end. Principles Matching principle – Dictates that expenses be matched with revenues in the period being reported. Conventions Money Measurement – Business activities must be able to be expressed in monetary terms to be recorded as transactions. and Principles Purpose: Use this job aid to review the assumptions. conventions. Conventions. Conservatism – The practice of reporting less revenue and a lower asset amount (or higher liability amount) in a situation that involves uncertainty between two reasonable alternatives of reporting in accounting books.

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