Understand the meaning and nature of accounting. •. Differentiate between various types of accounting. •. Know development of accounting principle. study objectives. 1. Explain the distinguishing features of managerial accounting. 2. Identify the three broad functions of management. 3. Define the three classes. This FREE eBook explains the principles of accounting - download it now for your Click the PDF icon below to download the eBook from the Online Library.
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CFI’s Principles of Accounting book is free and available for anyone to download as a pdf. Learn about the most important accounting concepts such as bookkeeping, the double entry system, accruals and matching principles, how to prepare financial statements, and more!. Accounting is a discipline where many people with different educational backgrounds may be involved, whether for personal use or work. PDF Drive is your search engine for PDF files. As of today we have 78,, eBooks for you Accounting Principles, 12th Edition by Jerry Weygandt [ronaldweinland.info].
The accounting principles definition references these rules or guidelines that your business must follow when preparing financial statements. Having a good accountant or bookkeeper can help your business save money and avoid mistakes, so it is highly recommended that all small businesses invest in this relationship early. So, assuming you have appropriately outsourced this crucial responsibility, why should you be concerned with mastering even the most basic business accounting principles when you have bigger fish to fry? Well, theoretically yes. But knowing basic accounting principles—or at least the gist of them—will help you understand why that accountant you hired is doing such seemingly specific things. To review, accounting is governed by a series of 10 principles or rules.
A more academic definition of accounting is given by the American Accounting Association: The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information. The American Institute of Certified Public Accountants defines accounting as: The art of recording, classifying, summarising in a significant manner and in terms of money, transactions and events which are, in part at least of financial character, and interpreting the results thereof.
Accounting uses a formalised and regulated system that follows standardised principles and procedures. The job of accounting is done by professionals who have educational degrees acquired after years of study.
While a small business may have an accountant or a bookkeeper to record money transactions, a large corporation has an accounts department, which supplies information to: Managers who guide the company.
Investors who want to know how the business is doing. The government, which decides how much tax should be collected from the company.
Accounting Principles Obviously, if each business organisation conveys its information in its own way, we will have a babel of unusable financial data. Personal systems of accounting may have worked in the days when most companies were owned by sole proprietors or partners, but they do not anymore, in this era of joint stock companies.
These companies have thousands of stakeholders who have invested millions, and they need a uniform, standardised system of accounting by which companies can be compared on the basis of their performance and value. Therefore, accounting principles based on certain concepts, convention, and tradition have been evolved by accounting authorities and regulators and are followed internationally.
The application of the principles by accountants ensures that financial statements are both informative and reliable. It ensures that common practices and conventions are followed, and that the common rules and procedures are complied with. This observance of accounting principles has helped developed a widely understood grammar and vocabulary for recording financial statements.
However, it should be said that just as there may be variations in the usage of a language by two people living in two continents, there may be minor differences in the application of accounting rules and procedures depending on the accountant.
For example, two accountants may choose two equally correct methods for recording a particular transaction based on their own professional judgement and knowledge. Accounting principles are accepted as such if they are 1 objective; 2 usable in practical situations; 3 reliable; 4 feasible they can be applied without incurring high costs ; and 5 comprehensible to those with a basic knowledge of finance. Accounting principles involve both accounting concepts and accounting conventions.
Here are brief explanations. Accounting Concepts Business entity concept: A business and its owner should be treated separately as far as their financial transactions are concerned. Money measurement concept: Only business transactions that can be expressed in terms of money are recorded in accounting, though records of other types of transactions may be kept separately.
Dual aspect concept: For every credit, a corresponding debit is made. The recording of a transaction is complete only with this dual aspect. Going concern concept: In accounting, a business is expected to continue for a fairly long time and carry out its commitments and obligations.
Cost concept: The fixed assets of a business are recorded on the basis of their original cost in the first year of accounting. Subsequently, these assets are recorded minus depreciation.
No rise or fall in market price is taken into account. The concept applies only to fixed assets.
Accounting year concept: Each business chooses a specific time period to complete a cycle of the accounting process—for example, monthly, quarterly, or annually—as per a fiscal or a calendar year. The justification for the use of the cost concept lies in the fact that it is objectively verifiable. Matching Principle According to this principle, the expenses incurred in an accounting period should be matched with the revenues recognized in that period, e.
It is wrong to recognize revenue on all sales, but charge expenses only on such sales as are collected in cash till that period. This concept is basically an accrual concept since it disregards the timing and the amount of actual cash inflow or cash outflow and concentrates on the occurrence i.
This concept calls for an adjustment to be made in respect of prepaid expenses, outstanding expenses, accrued revenue, and unaccrued revenues. Matching does not mean that expenses must be identifiable with revenues. Expenses charged to a period may or may not be related to the revenue recognized in that period, e. Full Disclosure Principle According to this principle, the financial statements should act as a means of conveying and not concealing.
The financial statements must disclose all the relevant and reliable information which they purport to represent so that the information may be useful for the users. For this, it is necessary that the information is accounted for and presented in accordance with its substance and economic reality and not merely with its legal form.