PRINCIPLE OF ACCOUNTING

TUTORIAL 1

INTRODUCTION TO ACCOUNTING

1. What is accounting? Why accounting is important in daily life?

Accounting involves the process of identifying, measuring, recording and
communicating the economic events of an organization (business or non-business)
to interested users of the information. Accounting plays a vital role in running a
business because it helps you track income and expenditures, ensure statutory
compliance, and provide investors, management, and government with quantitative
financial information which can be used in making business decisions.

2. What is accounting cycle? Prepare the format of Journal, Ledger and Trial Balance.
The cycle represents the flow of information from the beginning of the recording
process to the preparation of financial reports. The steps in the cycle are performed
in sequence and are repeated in each period.
JOURNALS
 Cash receipt
 Cheque butts
 Purchase invoices
 Sales invoices
 Utility bills

Ledger - All transaction of similar significance grouped together in ‘T’ account

Trial Balance - To make sure that total debit and equal to total credits

3. Who are the users of accounting information? Provide example.

Internal Users
 Managements
 Employees

External Users

 Direct Interest
 Indirect interest
4. Why does materiality importance in enhancing the evidence for the financial data
collection?
 The recording of assets and liabilities require a strict adherence to any of the
accounting principles if it is expensive. As long as it does not materially or
significantly affect of the reported net income of the business.
 In other words, recording of trivial items in a special way is allowed.
 If a transaction is considered to be material, it significantly affects the
reported net income of the business.

5. Provide one situation that combined substance over form and realization concept.
One of the pertinent issues in financial accounting is when to take credit of revenue.
To be consistent with the prudence concept, in general, profit is taken or realized
only when the customer incurs liability for them.