PRINCIPLE OF ACCOUNTING

• Bookkeeping


  The process of classifying, recording, and summarising transactions systematically into the books of accounts
• Accounting


  The process of classifying, recording, summarizing, reporting, analysing and interpreting business transactions into monetary units to assist users for decisions making
• Book-keeping vs accounting


  • Accounting involves all the activities includes book-keeping activities
  • Four main stages: Classifying, Recording, Summarising, Analysing and interpreting
• Accounting Principles


  • Historical Cost
  • Objectivity
  • Matching of revenues and expenses
• Accounting Assumptions


  • Separate Entity
  • Going Concern
  • Money as a unit of measurement
  • Consistency
  • Accounting period
• Accounting Constraints


  • Conservatism
  • Materiality
  • Benefit and Cost
• Historical Cost


  The concept that asset should be valued based on their purchase price stated in the source document
• Objectivity


  Financial & Accounting information needs to be based on evidence and not opinions
• Matching of revenues and expenses

  All expenses incurred to generate revenue must be reported within the period in which the revenue is reported
• Separate Entity


  A business and its owner are two separate entities
• Going Concern


  It is assumed that business will continue to expand and operate in the future
• Money as a unit of measurement

  All transaction are recorded in the country's monetary unit. It is assumed that the value is stable
• Consistency


  Same accounting method used from one accounting period to another accounting period
• Accounting period


  Business activities can be divided into specific periods (a month, a quarter, six months or a year)
• Conservatism


  Avoid overstating values of asset and revenue and understating liabilities and expenses when recording transaction
• Materiality


  It is concerned about events that are significant in nature and affect how end users view the financial statements
• Benefit and Cost


  The cost of preparing accounting information must not exceed the benefit of the information to the users of the financial statements
• Roles of an Accountant

  • Provide the management of organization with reliable and relevant financial information for decision making
  • Record, classify, summarize, report, analyze, and interpret the activities of business
• Other Roles of an Accountant

  • Prepare and monitor fundamental accounting entries
  • Check daily cash and banking transactions
  • Update the status of accrued and prepaid activities
  • Manage payroll reconciliations
  • Prepare monthly sales and purchase reports
  • Budget business revenue and expenses
  • Ensure compliance with generally accepted accounting principles and company procedures
  • Review, investigate and correct errors and inconsistencies in financial entries, documents and reports
  • Provide financial advice and alert the management of any risk-prone business activities
• Internal Users


  • Business owner
  • HR dept.
  • Marketing dept.
  • Top Management
  • Strategic Planning dept.
• External Users


  • Potential shareholders
  • Government or related authority bodies
  • Creditors
  • Public
• Financial Accounting


  Prepared in the form of financial statements, more concerned with the financial position, performance and changes in financial position of a business, records past financial performances to give external users a clear picture of the business's financial status

  
• Management Accounting


  Prepared in the form of customized designed reports, used by decision makers for daily operations or for investment purpose, importance in order to make decisions that might maximize profit, efficient conduct and valuable business operations