What is a principle of conservatism in 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,…
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What is a Double Entry System in Bookkeeping or Accounting?
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,…
Read article Overview of IFRS: The International Financial Reporting Standards
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…
Read article Understanding Generally Accepted Accounting Principles of USA (GAAP)
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…
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What is a subordinated debt?
Subordinated debt refers to the debt owed to an unsecured creditor. In the event of the bankruptcy or liquidation of the debtor, the court will prioritize the outstanding loans which the liquidated assets shall repay. Therefore, subordinated debt can only be paid if any assets left after the claims of secured creditors have been met.…
What is revaluation of assets/revaluation reserve?
A business usually owns capital assets like Plant and machinery, land and building, equipment etc. The values of these assets are periodically depreciated over their useful life span both for accounting and tax purposes. The revaluation of assets is stark opposite to planned depreciation where the recorded decline in value of these assets tied down…
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