Financial Concepts

The recording of financial transactions undertaken by an individual or an organization defined Bookkeeping. The organization could be an enterprise, a charitable organization or even a local sports club. The necessary support for such accounting function is provided by bookkeeping as the preparation of cost reports, financial statements, and tax returns. Making entries to specific accounts with debit and credit system and keeping track of a business’s financial transactions is involved. Bookkeeping has evolved through the years from clay tablets, to paper ledgers, and now computerized systems. Even for now, bookkeeping fundamentals have not been changed through the ages. And chances are the future societies will not be able to exist without a formal system of financial recording keeping. In short, some of the same problems that plagued ancient bookkeepers still exist even with modern advancement. The process of bookkeeping is always considered to be as vital importance to categorizeContinue reading

An accounting framework is a coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements. The main reason for developing a conceptual framework are that gives a framework for setting accounting standards, a basis for resolving accounting disputes and fundamental principles which then do not have to be repeated in accounting standards. Furthermore, Conceptual Framework can be categorized in terms of the distinctive function of management accounting within the management process in organizations. Moreover, the way in which the utility of the outcomes of the management accounting process can be tested. Conceptual Framework is a criteria which can be used to assess the value of the processes and work technologies used in management accounting and capabilities necessarily associated with the effectiveness of the management accounting function overall. Conceptual Framework plays an important role inContinue reading

The role of financial accounting is not to show the value of a company, but rather it provides enough information for others outside the company to determine the value of the company for themselves. Financial Statements are annual statements summarizing a company’s activity over the last year. They consist of the profit and loss account, balance sheet, statement of total recognized gains and losses and, if required, the cash flow statement together with supporting notes. Proper financial statements are crucial for a company’s success. Bad financial management can quickly lead to a company’s downfall. Income statements, also known as P&L’s or profit and losses are a basic account of the company’s profits, expenses and sales. These reports will give insight into the finances of a company in the immediate and distant future. Balance sheets are the assets, liabilities and the equity of a company. This sheet is simply the statementContinue reading

Accounting concepts and conventions as used in accountancy are the rules and principles applied when recording economic events and in the preparation of financial statements, that all accountants abide by. Some of the fundamental accounting concepts that will be discussed are the accruals, matching, prudence, going concern and consistency concepts. Money measurement concept – Accounting normally deals with only those items that are capable of being expressed in monetary terms. Money has the advantage that it is a useful common denominator with which to express the wide variety of recourse’s held by a business. However, not all such resources are capable of being measured in monetary terms and so will be excluded from a balance sheet. The money measurement concept, thus, limits the scope of accounting reports. Historic cost concept – Assets are shown on the balance at a value that is based on their historic cost (that is, acquisitionContinue reading

Definition of Accounting The American Accounting Association define accounting as “the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.” Let’s look at the key words in the above definition: It suggests that accounting is about providing information to others. Accounting information is economic information – it relates to the financial or economic activities of the business or organization. Accounting information needs to be identified and measured. This is done by way of a “set of accounts”, based on a system of accounting known as double-entry book keeping. The accounting system identifies and records “accounting transactions”. The “measurement” of accounting information is not a straight-forward process. it involves making judgements about the value of assets owned by a business or liabilities owed by a business. it is also about accurately measuring howContinue reading