Basic Accounting Concepts

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Presentation transcript:

Basic Accounting Concepts Money Measurement Entity Going Concern Cost Dual Aspect Accounting Period Conservatism Realization Matching Consistency Materiality Basic Accounting Concepts: The Balance Sheet

Basic Accounting Concepts: The Balance Sheet 1. The Money Measurement Concept In financial accounting, a record is made only of information that can be expressed in monetary terms. 2. The Entity Concept Accounts are kept for entities, as distinguished from the persons who are associated with these entities. 3. The Going Concern Concept Unless there is good evidence to the contrary, accounting assumes that an entity is a going concern. Basic Accounting Concepts: The Balance Sheet

5. The Dual Aspect Concept 4. The Cost Concept An asset (non monetary asset) is ordinarily entered initially in the accounting records at the price paid to acquire it - at its cost. 5. The Dual Aspect Concept Economic resources of an entity ASSETS = EQUITIES Claims of creditors & owners of the business ASSETS = Liabilities + Owners’ Equity Basic Accounting Concepts: The Balance Sheet

Basic Accounting Concepts: The Balance Sheet Balance sheet is financial position of an accounting entity as of specified moment in time. Its more formal name is a statement of financial position. More specifically, the balance sheet reports the assets and equities (liabilities and owners’ equity) of the entity at the specified moment in time. Because the balance sheet is a snapshot as of an instant in time, it is a status report (rather than a flow report). Basic Accounting Concepts: The Balance Sheet

Basic Accounting Concepts: The Balance Sheet

Basic Accounting Concepts: The Balance Sheet The balance sheet can be interpreted in two ways, both of which are correct: 1. Resources and Claims View Claims against the entity as of the balance sheet date. Liabilities are the claims of outside parties. Owners’ equity shows the claim of the owners The economic resources of the entity as of the date of the balance sheet Basic Accounting Concepts: The Balance Sheet

Asset = Liabilities + Owners’ Equity 2. Sources and Uses of Funds View .. to show sources of the funds that invested in the assets - it shows how the assets were financed. The several liability items describe how much of that financing was obtained from trade creditors, from lenders, and from other creditors. The owners’ equity shows the financing supplied by the owners … to show the forms in which the entity has used, or invested, the funds provided to it as of the balance sheet date Asset = Liabilities + Owners’ Equity Basic Accounting Concepts: The Balance Sheet

Basic Accounting Concepts: The Balance Sheet