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This is just prepared as the help guide of those who have problems with definitions and basic concept of financial accounting. All must go through the main book for better understanding.)
Prepared By:
G.M. Akther Hossain Bappy Email: akther.hossain.bappy@gmail.com
2. Tax 3. Managerial Basic Function of accounting system: 1. Interpret and record business transactions 2. Classify similar transactions into useful reports. 3. Summarize and communicate information to decision maker. Characteristics of externally reported information: 1. 2. 3. 4. 5. 6. A means to an end. Broader than financial statement. Historical in nature. Result from inexact and approximate measures. Based on general-purpose assumption. Usefulness enhanced by explanation.
Characteristics of Internal Accounting Information: 1. 2. 3. 4. Timeline. Identify decision making authority Oriented toward future. Measures of efficiency and effectiveness.
Owners Equity represents the owners claim to the assets of the business.
Realization Principle: Revenue should be recognized at the time goods are sold and services are rendered. Matching Principle: Expenses should be recorded in the period in which they are used up. Dividend: 1. It is a distribution of assets by corporation to it stockholders. 2. Dividends are not expenses. 3. It dose not serve to generate revenue. Importance of Trial Balance: 1. Trial balance summarizes all the financial transactions of the business. 2. Trial balance provides a check on the arithmetical accuracy of recordings of all the financial transactions of the business. 3. Trial balance helps in locating errors by providing a starting point for the location of errors committed if any. 4. Trial balance provides a basis for the preparation of final accounts.
The limitations of trial balance are: 1. There are certain errors, which are not disclosed by a trial balance. Again, the agreement of a trial balance is not a conclusive proof of the accuracy of posting. 2. A trial balance gives only condensed information of each account. 3. It does not give information about the profit or loss made by the business in the accounting period or financial position of the business as at the close of the period.
An accounting worksheet is a tool that businesses use to balance and close out their books at the end of a period. An accounting worksheet lists all the balances of each account a business has, with adjusting and closing entries made to these balances. When a worksheet is complete, the company prepares financial statements from them.
Credit terms and Cash discounts: A/B, n/C. A = percentage of discount B = number of days discount is available n = otherwise the full amount is due C = number of days when full amount is due.