Accounting, We Love!

Having knowing a little facts from accounting history let us now try to know what are some basic accounting principles . These are: 1 . Accrual principle . is the most fundamental principle of accounting which requires recording revenues when they are earned and not when they are received in cash, and recording expenses when they are incurred and not when they are paid. Example: An accounting firm obtained its office on rent and paid $120,000 on January 1 as annual rent. It does not record the payment as an expense because the building is not yet used. Instead it records the cash payment as prepaid rent (which is a current asset):     Prepaid rent DEF Bank DEF The firm recognizes rent expense over the period. For example, in preparing its quarterly income statement on March 31, the firm expenses out three months' rent i.e. 30,00 (= $120,000/12 × 3] because 3 months equivalent of time has expired (from 1 January till 31 March). Rent expense GHI

Before anything else... Have you ever wonder the history of accounting? Aren't you a little bit curious about it? I did a short research about it and here's what I found from the web. The name that looms largest in early accounting history is Luca Pacioli, who in 1494 first described the system of double-entry bookkeeping used by Venetian merchants in his Summa de Arithmetica, Geometria, Proportioni et Proportionalita. Of course, businesses and governments had been recording business information long before the Venetians. But it was Pacioli who was the first to describe the system of debits and credits in journals and ledgers that is still the basis of today's accounting systems. The industrial revolution spurred the need for more advanced cost accounting systems, and the development of corporations created much larger classes of external capital providers - shareowners and bondholders - who were not part of the firm's management but had a vital interest i

What is Accounting?        Accounting is the process of recording and reporting business transactions and events as a basis in making economic decisions.               Accounting is also a profession consisting of individuals having the formal education to carry out these tasks. It is very important that they know very well the process in order to maintain the accuracy and efficiency of the business organization.              According to Committee on Accounting Terminology of the American Institute of Certified Public Accountants (AICPA), accounting is the art of recording, classifying and summarizing in a significant manner and in the terms of money, transactions and events which are in part at least of a financial character and interpreting the results thereof. For more details about accounting, please click the link provided below . - What is Accounting?       What is the importance of Accounting?                   Accounting is very important in o

What is the accounting cycle? The accounting cycle is often described as a process that includes the following steps: identifying, collecting and analyzing documents and transactions, recording the transactions in journals, posting the journalized amounts to accounts in the general and subsidiary ledgers , preparing an unadjusted trial balance, perhaps preparing a worksheet, determining and recording adjusting entries , preparing an adjusted trial balance , preparing the financial statements, recording and posting closing entries, preparing a post-closing trial balance , and perhaps recording reversing entries .  (www.accountingcoach.com/blog/accounting-cycle) In remembering this cycle is just easy; S ource Documents - these are the transactions being done in the Business  J ournal - it is where you will identify the account title and where it belongs, debit or credit L edger - it is where all the accountant title is recorded all together  T rial Balance - all accounts