Basic Accounting

Terminology

Prepared By:
Mashud Ahsan Taqi
Class:
Roll Number:
 What is Accounting?
• Method of
reporting financial
activity of a
business
• Financial
transactions
recorded in an
orderly fashion
Accounting Equation

Assets =
Liabilities +
Owner’s
Equity
 Assets Company
Cars

Anything of
Value
owned by the
Business

Office
Furniture

Cash / Building /
Accounts Real Estate
Receivable Office
Equipment Office Supplies
Liabilities
Money owed by
the business

Accounts Payable

Taxes Due
Mortgage Payable
Office Supply Store
Utilities
Corporation
 Financial Statements
• Financial Statements
• Written reports that describe the
financial health of a company;
prepared regularly on quarterly and
annual basis.
Balance Sheet
Income Statement
Statement of Change in Owner’s
Equity
 Financial Statements, cont.
• Balance Sheet • Assets
• Anything of value
• Reports assets, that is owned by the
liabilities, and business.
owner’s equity • Liabilities
on a certain • Money owed by the
date business (debts,
accounts payable)
• Owner’s Equity
• Net worth of the
business
 Financial Statements, cont.
• Income Statement • Income/Profit
• Financial Statement • Results when a
of a business that business’s income is
reports the revenue, greater than its
expenses and the expenses.
net income (loss) of • Loss
a business for the • Results when a
fiscal period. business’s expenses
are greater than its
• Revenue income.
• Amount of money that a
company earns • Fiscal Period
• Specific period of time
• Expenses covered by an
• Costs of maintaining accounting statement or
and operating a report (1 month or year)
business.
 Financial Statements, cont.
• Statement of
Change in
Owner’s Equity
• Financial Statement
of a business that
reports the changes
that have occurred in
the owner’s equity
account during the
fiscal period.
 Accounting Activities
related to orderly record-keeping of financial information

• Recording daily • Auditing financial

transactions records
• Examining financial
• Preparing financial records for accuracy and
statements compliance with
regulations
• Paying bills
• Reconciling the
• Preparing payroll checkbook
checks • Bringing the checkbook
into agreement with
• Preparing tax forms bank statement
•What are other accounting activities?
 ACCOUNTING PRINCIPLES
Accounting Concepts
The term ‘concept’ is used to connote
accounting postulates, that is necessary
assumptions and conditions upon which
accounting is based.
 ACCOUNTING CONCEPTS
• Business Entity Concept
• Money Measurement Concept
• Cost Concept
• Going Concern Concept
• Dual Aspect Concept
• Realization Concept
• Accounting Period Concept
 Business Entity Concept

Business is treated as a separate entity or

unit apart from its owner and others. All the
transactions of the business are recorded in
the books of business from the point of view
of the business as an entity and even the
owner is treated as a creditor to the extent
of his/her capital.
 Money Measurement Concept

In accounting, we record only those

transactions which are expressed in terms
of money. In other words, a fact which can
not be expressed in monetary terms, is not
recorded in the books of accounts.
 Accounting Period Concept
In accounting, life of the business is
perpetual but still it has to report the
results of activity undertaken in one year. So
final accounts are prepared for the
accounting period which is 12 months
period and normally it is the Financial Year (
1st July to 30th June).
 Cost Concept

Transactions are entered in the books of

accounts at the amount actually involved.
Suppose a company purchases a car for
Rs.1,50,000/- the real value of which is
Rs.2,00,000/-, the purchase will be recorded
as Rs.1,50,000/- and not any more. This is
one of the most important concept and it
prevents arbitrary values being put on
transactions.
 Going Concern Concept

It is persuaded that the business will exists

for a long time and transactions are
recorded from this point of view. The entity
is assumed to remain in operation
sufficiently long to carry out its objects and
plans.
 Dual Aspect Concept

Each transaction has two aspects, that is,

the receiving benefit by one party and the
giving benefit by the other. This principle is
the core of accountancy.
 Dual Aspect Concept continue…

For example, the proprietor of a business

starts his business with Cash Rs.1,00,000/-,
Machinery of Rs.50,000/- and Building of
Rs.30,000/-, then this fact is recorded at
two places. That is Assets account (Cash,
Machinery & Building) and Capital accounts.
The capital of the business is equal to the
assets of the business.
 Dual Aspect Concept continue…

Thus, the dual aspect can be expressed as

under

Capital + Liabilities = Assets

or
Capital = Assets – Liabilities
 Realization Concept

This concept emphasizes that profits should

be considered only when realized .
Accounting should take into consideration
profits only when the same have been
realized.
 Matching Concept

Matching concept requires that expenses

should be matched to the revenues of the
appropriate accounting period. So we must
determine the revenue earned during a
particular accounting period and the
expenses incurred to earn those revenues.
 Accrual Concept

Accrual is concerned with expected future

cash receipts and payments : Accounting
attempts to recognize non-cash events and
circumstances as they occur.
Examples are – purchase and sales of goods
on credit ,wages and salaries outstanding.
 Stable Monetary Unit Concept

This concept presumes that the purchasing

power of monetary unit ,say, rupee, remains
the same throughout , thus ignoring the
effect of rising or falling purchasing power
of monetary unit due to deflation or
inflation.
Thank You!