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Accounting Concepts
Four important accounting concepts underpin the preparation of any set of accounts:
Going Concern
Accountants assume, unless there is evidence to the contrary, that a company is not
going broke. This has important implications for the valuation of assets and liabilities.
Consistency
Transactions and valuation methods are treated the same way from year to year, or
period to period. Users of accounts can, therefore, make more meaningful
comparisons of financial performance from year to year. Where accounting policies
are changed, companies are required to disclose this fact and explain the impact of
any change.
Prudence
Profits are not recognised until a sale has been completed. In addition, a cautious
view is taken for future problems and costs of the business (the are "provided for" in
the accounts" as soon as their is a reasonable chance that such costs will be
incurred in the future.
Accounting Conventions
The most commonly encountered convention is the "historical cost convention". This
requires transactions to be recorded at the price ruling at the time, and for assets to
be valued at their original cost.
The other conventions you will encounter in a set of accounts can be summarised as
follows:
Monetary measurement
Accountants do not account for items unless they can be quantified in monetary
terms. Items that are not accounted for (unless someone is prepared to pay
something for them) include things like workforce skill, morale, market leadership,
brand recognition, quality of management etc.
Separate Entity
This convention seeks to ensure that private transactions and matters relating to the
owners of a business are segregated from transactions that relate to the business.
Realisation
With this convention, accounts recognise transactions (and any profits arising from
them) at the point of sale or transfer of legal ownership - rather than just when cash
actually changes hands. For example, a company that makes a sale to a customer
can recognise that sale when the transaction is legal - at the point of contract. The
actual payment due from the customer may not arise until several weeks (or months)
later - if the customer has been granted some credit terms.
Materiality
ANSWER-2
(I)-
Journal is a book of accounting where daily records of business transactions
are first recorded in a chronological order i.e. in the order of dates. This is called journal.
(II)-
A ledger is an accounting book in which all similar transactions related to a particular person
or thing are maintained in a summarized form. This is known as ledger.
(III)-
Journal
6. It may be subdivided into a cash book, a sales day book, sales return day
book, purchases day book,purchases return day book, B/R Book, B/P Book, Petty
Cash Book.
Ledger
3. It is prepared with the help of a journal itself, therefore, it is the immediate step
after recording a journal.
4. Except nominal accounts all ledger accounts are balanced to find the net result.
1. Journal provides records of all business transactions in one place on the time and date
basis.
2. All transactions are recorded on the basis of receipts or bill, so we can check authenticity
of each journal entries with their bills.
3. There is minimum chance to avoid any particular transaction because in journal
transactions are recorded date basis.
4. Accountant writes every journal entry’s narration bellow of that journal entry, so other
auditor can know what the reason of that journal entry is.
5. In journal, every transaction is recorded after deep analysis of two accounts on the basis
of double entry system, so there is minimum chance of mistake in journal.
6. Journal is the basis of posting in ledger accounts. With making of journal, accountant can
not make ledger accounts.
7. If there is mistake in ledger, we can rectify it with the help of journal or rectify journal
entry in journal.
8. All opening journal entries , closing journal entries and all other transactions which is not
recorded in any other subsidiary books , will be recorded in journal .
9. Journal is also needed in every type of accounting software . These accounting software
can make auto system of posting journal entries by their automatic processing , but accountant
must feed journal entries in journal and other specific vouchers of journal .
10. In journal , there is one column of ledger folio . It is very important for checking reference
of each account's posting with its original journal entry .
(V)-
S.NO PARTICULARS LF DR. CR.
1. Cash A/c Dr. 25,000
To Capital A/c
25,000
(Being mohan started a business)
2. 20,000
Purchase A/c Dr.
4. 1,000
B’s A/c Dr.
1,000
To Purchase return A/c
5. 2,500
R’s A/c Dr.
2,500
To Sales A/c
6. 20
Cartage A/c Dr.
20
To Cash A/c
7. 100
Cash A/c Dr.
100
To Interest on dividend A/c
8. 250
Salary A/c Dr.
250
To Cash A/c