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Accouting Basics - Unit 1 - First Class

The document covers accounting basics including double entry accounting, accrual basis accounting, consolidation of financial statements, fair value of assets and liabilities, and the going concern assumption. Double entry accounting records every transaction twice, once as a debit and once as a credit. Accrual basis accounting records revenue and expenses when earned or incurred rather than when cash is exchanged. Consolidation combines the financial statements of subsidiaries into a single report. Fair value estimates the market value of assets and liabilities. The going concern assumption expects a company to continue operating without liquidation.

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Matheus Ribeiro da Silva
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11 views

Accouting Basics - Unit 1 - First Class

The document covers accounting basics including double entry accounting, accrual basis accounting, consolidation of financial statements, fair value of assets and liabilities, and the going concern assumption. Double entry accounting records every transaction twice, once as a debit and once as a credit. Accrual basis accounting records revenue and expenses when earned or incurred rather than when cash is exchanged. Consolidation combines the financial statements of subsidiaries into a single report. Fair value estimates the market value of assets and liabilities. The going concern assumption expects a company to continue operating without liquidation.

Uploaded by

Matheus Ribeiro da Silva
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Accouting Basics – Unit 1 – First Class

1. Double Entry Accounting


- Meaning: A system where every financial entry is recorded twice: once as a debit
and once as a credit.
- Sentences:
- When we received a payment from a client, our accountant used double entry
accounting to debit the cash account and credit the revenue account.
- Under double entry accounting, purchasing new office furniture led to a debit in the
office furniture account and a corresponding credit in the accounts payable account.

2. Accrual Basis
- Meaning: Revenue and expenses are recorded when they are earned or incurred, not
necessarily when the money is exchanged.
- Sentences:
- On an accrual basis, we recognized revenue from services rendered this month,
even though the payment will only be received next month.
- Our rent expense for December was recorded on an accrual basis in December's
financial statements, despite the rent payment being due in January.

3. Consolidation
- Meaning: The process of combining the financial statements of several departments
or subsidiaries into one comprehensive financial statement.
- Sentences:
- The financial team completed the consolidation of the financial statements from all
subsidiaries for the annual report.
- Due to consolidation, the total revenue reported on the parent company’s financial
statement included the revenue from all its subsidiaries.

4. Fair Value
- Meaning: The estimated market value of an asset or liability based on current prices
in an open and competitive market.
- Sentences:
- The fair value of our commercial real estate was reassessed this year to reflect the
recent increase in market prices.
- Financial instruments like derivatives are often reported at fair value to ensure
transparency in financial reporting.

5. Going Concern
- Meaning: The assumption that a company will continue its operations for the
foreseeable future without the need for liquidation or bankruptcy.
- Sentences:
- The assumption of going concern allows us to defer some expenses over future
periods since the company is expected to be operational.
- Our auditor evaluated whether our company can continue as a going concern before
finalizing the audit report.

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