Question

Explain key principles of double entry bookkeeping and accrual accounting, including all conventions, policies and bases

Answer 1

Book Keeping is an art of recording day to day business transactions that which can be expressed in terms of money.According to AICPA the term "Accounting" is defined as an art of recording,classifying and summarizing in a significant manner and in terms of money,transactions and events which are, in part atleast, of financial character and interpreting the results thereof...

Accounting Bases:

Accounting bases are the techniques that which are implemented for the application of fundamental accounting principles to the financial transactions as well as items. For example depreciation and inventory.

Accounting Policies:

These are the specific accounting bases that which were selected and followed consistently by a business enterprise.

Double Entry Book Keeping:

It is a method of recording accounting transactions where in each and every transaction will have a dual fold affect of debit and credit over two accounts.

Accrual Accounting:

This method of accounting considers to record revenues and expenses in the financial year when they are accrued.

Concepts of Accounting:

1. Business Entity Concept: This concept determines the principle that while accounting the transactions of business always the business and the enterprenuer has to be treated as seperate entities. In simple for the purpose of accounting business and owner are to seperate entities.

2. Money Measurement Concept: This accounting concept states that always accounting data considers money as a channel of measurement.

3.Going Concern Concept: This accounting concept determines an assumption of business succession in perpetuity needs to be considered while accounting the transactions.

4.Accounting Period Concept: Generally an accounting year period will be followed for preparation of business accounts.

5.Cost Concept: This concept breifs that while accounting assets of business need to be reported at cost rather than the market value.

6. Realisation Concept: This concept states that business must report revenue only when it was earned.

7. Matching Concept: This accounting concept aims at matching the revenues earned with expenses incurred during a financial year to know the cause and affect relationship in between the revenues and expenses.

8.Accrual Concept: This accounting concept aims at reporting the revenues and expenses against the year in which they are taken place.

9. Dual Aspect Concept: Always an accounting transaction reflects a debit and a credit. In every accounting transaction there lies a receiving and giving aspect.

Conventions of Accounting:

1.Consistency: This accounting convention dictates the principle to be followed. The method of accounting which business adapts must be continued in perpetuity. So that the results of business can easily be compared, as change in method reflects the computations.

2.Disclosure: This accounting convention dictates that all the relevant financial information of business need to be communicated for end users.

3.Materiality: Reporting of accounting information need to be done with disclosure of information that has some material affect over the business.

4. Objectivity: This states unbiased and is subject to the verification from external expert.

5. Stable Monetary Unit: Accounting of business transactions need to be done on the basis of country's base currency.

6.Conservatism: This convention states to overstate the assets and income of business in situations of doubt that the firm may dissolve.