Question 1

• Entity Concept

  Recognizes the business as a separate economic entity from its owners. This principle ensures that personal transactions of owners are kept separate from business transactions.
• Going Concern Concept

  Assumes that the business will continue operating indefinitely. This concept influences financial reporting by assuming that assets will be used to generate future revenues rather than being liquidated.
• Money Measurement Concept

  Only transactions that can be expressed in monetary terms are recorded in the accounting records. Non-monetary transactions or items like employee satisfaction cannot be recorded.
• Cost Concept


  States that assets are recorded at their historical cost or the amount paid to acquire them. This ensures consistency and reliability in financial reporting.
• Dual Aspect Concept

  Every transaction has two aspects - a debit and a credit - which must be equal and opposite. This maintains the accounting equation: Assets = Liabilities + Owner's Equity.
• Transaction Analysis in Accounting

  1. Identifying the Transaction

  2. Analyzing the Transaction

  3. Recording the Transaction

  4. Posting to the Ledger

  5. Preparing Financial Statements
• Identifying the Transaction


  Recognizing the economic event or activity that affects the entity's financial position.
• Analyzing the Transaction


  Determining the impact of the transaction on the accounting equation. This involves identifying which accounts are affected and whether they increase or decrease.
• Recording the Transaction

  Entering the transaction into the appropriate journals (such as Sales Journal, Purchases Journal, etc.) or the General Journal if it doesn't fit into specialized journals.
• Posting to the Ledger


  Transferring the information from journals to the ledger, where individual account balances are maintained.
• Preparing Financial Statements


  Using the information from the ledger to prepare financial statements (Income Statement, Balance Sheet, Statement of Cash Flows) that summarize the financial performance and position of the business.