Question

Q1: Explain the following with examples in context of financial accounting used in Sage50:

a) Accounting concepts (Marks-5)

b) Debtors & Creditors (Marks-5)

c) Discount Received & Allowed (Marks-5)

d) Financial Statements (Marks-5)

Answer 1

1) Accounting concept is what forms the entire basis on which the financial statements are prepared. There are different types of accounting concepts which deals with different aspect of accounting like, accrual concept, conservatism concept, consistency concept, going concern concept, matching concept, materiality concept. The accrual concept says that revenue or expenses should be recognized when they accrue not when they received. Conservatism concept is related to valuation of assets and liabilities. Consistency is related to the consistent approach in which the principals are followed. They should not be changed more often without having a justifiable reason. Going concern assumes that organization will continue to function forever. Matching concept is related to the matching of revenue and expenses in the period they occur.

2) Debtors are who owe the money to the company. They are treated as current asset. For example, when sales are made on credit, there is debtors who owe the money to the company. Creditors are who provide the company with the funds or raw materials. They are called creditors because they provide credit to the company and the company owes money to them.

3) Discount received is when the company is purchasing raw material from the suppliers and they provide discount to the company in the form of reduced cost or overall certain percentage of discount. Discount allowed is when the company is selling final goods and services to the customers and they are providing discount to attract the customers.

4) Financial statement is an overall summary of the company in numerical format. The key financial statements are Income statement, Balance sheet, Cash flow statement and the statement of equity. Income statement shows all the income and expenditure for a specific time period, the balance sheet shows the financial position of a company at a certain point of time. The cash flow shows the movement of cash, inflow as well as outflow of cash, it has three component, Cash flow from operation, cash flow from investing, and cash flow from financing activities. The statement of equity shows the equity balance or the shareholders holding.