A business transaction is first recorded in a journal, also called a Book of Original Entry. Journalising is the process of recording a business’s financial transactions in a journal. The transactions entered in a Journal are the basis for posting to ledgers. Journal entries are also used for cross-checking when the ledger balance is not…
Debits and credits are accounting terms that represent the two sides of a financial transaction. Debit is notated “DR” and credit is notated “CR”. The word debit comes from the Latin word “debitum” meaning “what is due” and the word Credit comes from “creditum”, meaning “something entrusted to another or a loan.” A debit (DR)…
There are three different types of accounts in accounting. They are Real, Personal, and Nominal Account. Real Account: A real account, or permanent account, is a general ledger account that does not close at the end of a period or at the end of the accounting year. There are five primary account categories in real…
Recording in accounting refers to keeping a record of monetary business transactions, reflecting the correct picture of assets-liabilities, profits, loss, etc. Recordkeeping helps companies track each business transaction, including new equipment purchases, product sales, service costs, payroll expenses, etc. Accurate recordkeeping provides important information for legal and tax purposes. In addition, recording Transactions in the…
Revenue Recognition and Realisation in accounting represent the profits companies and individuals make from selling assets. However, there are certain difference between Revenue Recognition and Realisation. Revenue recognition is an aspect of accrual accounting that stipulates when and how businesses “recognise” or record their revenue. The principle requires that businesses recognise revenue when it’s earned…
Fair value accounting is the measurement of assets and liabilities of a business based on the estimation of current market values. It means the assets can be sold or a liability settled in an orderly transaction to a third party under current market conditions. Therefore this method of accounting is also known as ‘mark-to-market accounting…
Conservatism Principle also known as the “Prudence Concept” states gains should be recorded if their occurrence is certain but losses with a remote chance are recognized. The conservatism principle in accounting is a guideline that requires accountants to be cautious and conservative when preparing financial statements. As per this guideline, when faced with two options,…
Italian monk Luca Pacioli is known as “the father of accounting”. He published a textbook called “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” in 1494. In the said huge math encyclopedia written by him he included an instructional section on double-entry bookkeeping. The three golden rules of accounting are (1) debit all expenses and losses,…
IFRS Accounting Standards are developed by the International Accounting Standards Board (IASB) an independent, not-for-profit organization that develops and approves International Financial Reporting Standards (IFRSs). The IASB established in 2001 operates under the oversight of the IFRS Foundation. IFRS was created to establish a common accounting language that forms accounting rules for public companies to…
Accounting standards in the USA are a set of accounting guidelines known as Generally Accepted Accounting Principles (GAAP). These standards govern how companies in the United States record and present their financial statements to regulatory authorities, investors, and all stakeholders. The Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) developed and…