Showing posts from March, 2022

Golden Rules of Accounting - Double Entry System in Accounting

Double Entry System in Accounting The double-entry system of book-keeping is an accounting system that recognizes the fact that every transaction has two aspects – the receiving aspect and the giving aspect , and both these aspects are recorded in the books of accounts. Or we can say, in order to receive some value, an equal value needs to be given. Let us understand this with an example : Suppose, you are a shop owner and you are buying furniture for your shop by paying Rs 20,000 in cash. There are two aspects involved in this transaction: You are receiving furniture which can be termed as receiving aspect. The second one, you are paying cash which can be termed as giving aspect. According to the double-entry book-keeping system, every transaction will have at least two accounts that are impacted. A debit entry is done in one account and a credit entry is done in another account. In the above example, furniture is one account that is debited by Rs 20000 and cash is the other account

Principles of Accounting - Accounting Concepts and Conventions

Question: What do you mean by Basic Accounting Principles? Also, explain the accounting concepts and conventions. Answer Introduction Let us assume, you have the financial statements of two companies – ABC Ltd.,  and XYZ Ltd.  You would like to access their financial performance, compare, analyze, and decide to invest your money in a financially strong company. But, these companies follow their own accounting procedures and methods. If there are no commonalities, no uniformity in the preparation of their financial statements, you’ll not be able to compare them. Will you be able to judge which company is performing better? Obviously, not. So, now you got, why accounting principles are formulated? To bring these commonalities and uniformity , Accounting Principles are formulated. The accounting principles are formulated and recognized by regulatory bodies throughout the world. These principles are important to be followed by every organization to bring uniformity and consistency in th

Basic Terms of Accounting

In the previous chapter, we let you know, what the term Accounting means. You got to know the meaning, definition, evolution, characteristics, scope, and systems of accounting. Before studying the next topic of accounting, we need to first understand the basic terminologies of accounting . So, the objective of this chapter is to make you familiarize you with some of the common terms of accounting. So, let's begin with the first term. Basic Accounting Terms 1. Capital - Capital is the amount, initially, invested while commencing the business. It can be in the form of cash, goods, or any type of asset. Even after commencement, additional capital can be introduced. The additional introduction of capital can be done in case of expansion of business. Profit earned in the business is added to the capital. The loss made in the business is reduced from the capital. So, if the business is profitable, capital would be on increase, year after year. In case of continuous losses, capital woul

Meaning and Basic Concepts of Accounting

Meaning of Accounting Accounting is a service function that provides financial information to the interested parties inside and outside the organization for their effective decision-making. Hence, the primary role of accounting information is to provide useful and reliable information for decision-making purposes. Accounting is a systematic process of identifying, measuring, recording, classifying, summarizing, interpreting, communicating financial information to the users. It shows the profit earned or loss incurred during the accounting period, value and nature of assets, liabilities, and owners’ equity, i.e., the capital. Usually, accounting is understood as the Language of Business. However, a business may have a lot of aspects that may not be of financial nature. As such, a better way to understand accounting could be to call it The Language of Financial Decisions. The better the understanding of the language, the better is the management of financial aspects of the business. Acc