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Basic Accounting Concepts

Basic accounting concepts help businesses track financial transactions and performance. Accounting records purchases, sales, payments, and transfers, allowing businesses to determine [1] profit/loss, capital invested, assets/liabilities, amounts owed/receivable, efficiency comparisons, and taxes owed. Key concepts include treating the business as separate from its owners, measuring financial information in monetary terms, assuming the business will continue to operate, recording assets at cost, and matching revenues to the expenses to earn them to accurately measure profit.

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saileshh
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101 views

Basic Accounting Concepts

Basic accounting concepts help businesses track financial transactions and performance. Accounting records purchases, sales, payments, and transfers, allowing businesses to determine [1] profit/loss, capital invested, assets/liabilities, amounts owed/receivable, efficiency comparisons, and taxes owed. Key concepts include treating the business as separate from its owners, measuring financial information in monetary terms, assuming the business will continue to operate, recording assets at cost, and matching revenues to the expenses to earn them to accurately measure profit.

Uploaded by

saileshh
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Basic Accounting

Concepts

Made simple for Non – Finance


People
Accountancy – What does it cover
Every business transaction involves either of
the following
• Purchase of goods / sale of goods
• Purchase of services / sale of services
• Payments / Receipts
• Transfer of funds from one party to the
transaction to another party.
Accountancy records all such transactions.
In which way does Accountancy
help a business man.
To know
• Profit earned / loss suffered during a
period.
• How much capital / funds has he deployed
in the business
• What are his assets and liabilities on a
particular day.
• How much does he owe to his creditors/
suppliers.
• Amount receivable to him from each of his
customers.
• Compare his business efficiency with that
of other competitors.
• Ascertain amount of taxes payable to the
Government.
• His cash and bank balance, stock of
goods on hand
• Review the progress of business over the
years.
• To prevent frauds and errors by detecting
them quickly.
• To keep control on valuable assets and
properties.
It can thus help in planning out business
operations, taking important decisions,
controlling business operations. It can help
the business man to represent the correct
position of his business to Banks so as to
avail loan facilities.
Various Concepts in
Accounting
• Business Entity
concept.
The businessman and
the business are two
separate entities.
• Mr. Busy Nessman puts Rs.1,00,000/- in his
proprietary business called M/s Ad Venture. The
transaction will be reflected differently in the
books of Mr. Busy Nessman and M/s Ad Venture
In the books of M/s Ad Venture

Liabilities Assets

Capital Rs.100000 Cash Rs.100000

For Mr. Busy Nessman , it will be an investment of Rs.100000.


The business owes Rs.1 lac to the proprietor and hence is
shown as a liability in the books of the firm. All the transactions
will be recorded on the basis of this concept of different
entities.
• Money Measurement Concept: Accounting is concerned
only with those facts which can be reflected in monetory
terms.
• Going Concern Concept: The business entity will
continue to carry on the business in the long run.
• Cost Concept: Assets acquired for the business are
shown at cost basis. So if land is purchased at say Rs.10
lacs has appreciated to Rs.50 lacs will be reflected at
cost.
• Conservatism Concept: In addition to cost concept , this
concept requires to provide for all possible losses. Hence
current assets are valued at cost or market value
whichever is lower.
• Dual Aspect concept: Before understanding this let us
understand what are Assets, Liabilities and Equity.
• Assets = What the firm ‘owns’ example – land building,
machinery, cash, stock etc
• Liabilities = What the firm ‘ owes’ to various parties,
example – term loan, bank finance,wages payable etc.
• Equity = Residual interest of the owners or difference
between Assets and Liabilities.
According to dual concept the assets of the firm are always
equal to its liabilities and equity. To put it in a
mathematical form
Assets= Liabilities + Equity.
• Accounting period Concept: Business operations are
measured over a specific time period and position is
assessed at the end of particular time period say quarter,
year etc.
• Accrual concept: Irrespective of whether cash is received
or not revenue is recognised when sales are made or
services are rendered and expenses are accounted for
when services are utilised or goods are received.
• Matching concept: Once revenues for an accounting
period are recognised , all expenses incurred to earn
that revenue must be matched against them. This
ensures correct picture of profit earned.

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