Unit I

Concept of Computerized Groups or Accounting Concepts:

There are a number of conceptual issues that one must understand in order to develop a firm
foundation of how accounting works. These basic accounting concepts are as follows:

 Accruals concept. Revenues are recognized when earned, and expenses are recognized when
assets are consumed. This concept means that a business may recognize sales, profits and losses
in amounts that vary from what would be recognized based on the cash received from customers
or when cash is paid to suppliers and employees. Auditors will only certify the financial
statements of a business that have been prepared under the accruals concept.
 Conservatism concept. Revenues are only recognized when there is a reasonable certainty that
they will be realized, whereas expenses are recognized sooner, when there is a reasonable
possibility that they will be incurred. This concept tends to result in more conservative financial
statements.
 Consistency concept. Once a business chooses to use a specific accounting method, it should
continue using it on a go-forward basis. By doing so, the financial statements prepared in
multiple periods can be reliably compared.
 Economic entity concept. The transactions of a business are to be kept separate from those of its
owners. By doing so, there is no intermingling of personal and business transactions in a
company's financial statements.
 Going concern concept. Financial statements are prepared on the assumption that the business
will remain in operation in future periods. Under this assumption, revenue and expense
recognition may be deferred to a future period, when the company is still operating. Otherwise,
all expense recognition in particular would be accelerated into the current period.
 Matching concept. The expenses related to revenue should be recognized in the same period in
which the revenue was recognized. By doing this, there is no deferral of expense recognition
into later reporting periods, so that someone viewing a company's financial statements can be
assured that all aspects of a transaction have been recorded at the same time.
 Materiality concept. Transactions should be recorded when not doing so might alter the
decisions made by a reader of a company's financial statements. This tends to result in relatively
small-size transactions being recorded, so that the financial statements comprehensively
represent the financial results, financial position, and cash flows of a business.
Hierarchy of accounts
The relationships among accounts in a hierarchical group are similar to parent-child
relationships. A hierarchical group is headed by a parent account with child accounts beneath
it. At each level above the bottom of the hierarchy, the child accounts themselves can be
parent accounts.

Codification in accounting

Goals

The three primary goals of the codification are "simplify user access by codifying all authoritative
U.S. GAAP in one spot, ensure that the codification content accurately represented authoritative
U.S. GAAP as of July 1, 2009, and to create a codification research system that is up to date for the
released results of standard-setting activity.The codification was made to make accounting
standards easier to find through a single data base.

Accounting package - Setting up an accounting entity, Creation of groups and

accounts

This option allows you to set up to 2 Reporting Groups for your General Ledger
Accounts. These Account Groups should represent the further grouping or division of
your Income, Expenses, Capital, Assets and Liabilities, i.e. Financial Categories or the
main classification of the Accounts in the Accounting Equation.

The 5 main groups of the Financial Categories are usually further divided into
Account Groups e.g.

1. Income - Income from normal business activities, e.g. sales, consulting, etc.
and Other Income received such as interest, etc.

2. Expenses - Expenses incurred during normal business activities, e.g. rent,

cleaning, etc. and Expenses of a Capital nature.

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 3. Capital - The contribution or contributions or investment from the owner or
owners. These groups you may wish to enter, may depend on the type of
ownership for the business, e.g. Company, Close Corporation, Partnership or
Sole Proprietorship.

4. Assets - Fixed Assets (Immovable Assets and Current Assets Movable Assets

5. Liabilities - Long-term Liabilities and Current Liabilities.

You may create any number of groups to meet your requirements. These Account
Reporting Groups are used to structure the layout of the Income
Statement and Balance Sheet. You may also select to print General Ledger
Transaction Reports only for those accounts which is linked to a specific reporting
group, e.g. Fixed Assets, Current Assets, etc.

After setting up your Account Groups, you need to link these Account Groups to the
correct Financial Categories in the Setup - System Parameters - Financial
Categories menu option.

You will be able to select any of the Accounts Reporting Groups 1 or 2, if you have
set it up on the following menu options.

 Edit - Accounts - Bank, General Ledger and Tax (Account Types).

 Reports - General Ledger

o Chart of Accounts (Listing)

o Budget Performance

o General Ledger Account Movements

o Trial Balance

o Income Statement

o Balance Sheet