Accounting by the American Institute of Certified Public Accountants (Aicpa) Essay Example

for accordingly.

To provide services to the business over a three-period, the cost of insurance at Rs. 45000 is considered an asset. However, if the business is expected to terminate soon, the policy should be reported at its cancellation value, which is the amount refunded upon cancellation.

The principle of measuring money applies to the entire business, including branch segments. The liquidation of a segment does not necessarily affect the overall enterprise's ability to continue as a going-concern. However, if an enterprise goes into liquidation, it is no longer considered a going-concern. Financial accounting only records monetary information, meaning that events or transactions that cannot be measured in terms of money cannot be accounted for.

While passing an exam, giving a lecture at a meeting, and winning a prize are events that cannot be measured in monetary terms and do not require tracking, business events benefit from measuring everything in financial terms. This approach provides better insight into the state of affairs. For instance, if a company possesses 1500 kg of stock, one car and 1500 square feet of building space, evaluating its financial position becomes easier.

Although these items cannot be combined to form a meaningful total of the business's assets, they can be quantified in monetary values. For example, the stock is worth Rs. 24,000, the car is worth Rs. 300,000, and the ig is worth...

If items are added efficiently, a precise asset estimate can be obtained. The cost concept is connected to the going concern concept, where an entry is made in accounting records based on the acquisition cost of the asset. This serves as the foundation for future accounting activities. For example, if

a business buys a building for Rs. 5,00,000, it would be recorded as such in the books regardless of its market value at that time.

The asset was originally purchased for Rs. 500,000, but even if later its market value decreases to Rs. 450,000, it will still be shown at its original cost. The cost concept doesn't necessarily mean that the asset will always be displayed at its original cost, but rather that cost is used as the foundation for all future accounting of the asset. This means that the asset is initially recorded at its purchase cost and may gradually decline in value over time due to depreciation.

The concept of Dual Aspect states that an entity's economic resources are referred to as 'assets', while the claims against those assets by various parties are called 'equities'. These equities can be divided into two types: 1. Liabilities, which are the claims made by creditors (i.e. anyone besides the business owners) and 2.

The claim of the owners of the business is referred to as Owner's Equity. The assets of a business are claimed either by its owners or its creditors, which can be expressed as Assets • Equities - the fundamental accounting equation that represents the dual-aspect concept. All accounting procedures are derived from this equation. The equation is commonly expressed as Assets = Liabilities + Owner's Equity, reflecting the two types of equities. Accounting records record the dual impact of every transaction, making accounting a double-entry system.

The concept of dual-aspect can be demonstrated by considering the example of Mr. A establishing a business with a capital of Rs. 30,000. This involves two modifications:

firstly, the business possesses cash (which is an asset) worth Rs.

The business must pay the proprietor Rs. 10,000 as capital, in addition to the Rs. 30,000 already paid. This transaction can be represented as: Cash (Assets) = Capital (Equities). Thus, the equation becomes Rs. 30,000 = Rs. 30,000.

After borrowing Rs. 15000 from a bank, the business's new financial position can be expressed as follows: Assets in terms of equities are Cash Rs. 30,000 and Bank Rs. 15000, while Liabilities are Bank loan Rs. 15000 and Capital Rs. 30,000.

The concept of the "accounting equation" refers to the correlation between equities and assets, which can be expressed as "a debit must have an equivalent credit." This idea will be elaborated on in the following chapter. Additionally, the concept of the Accounting Period is crucial because financial statement users require up-to-date information.

Businesses use short accounting periods, usually lasting a year, for financial reporting. At the end of each period, it is essential to review performance by preparing an income statement and balance sheet. These documents illustrate the profit or loss made during the year and show the financial position on the last day of the accounting period. The Matching Concept emphasizes the relationship between revenue and expenses; expenses are incurred to produce revenue. Therefore, when measuring net income for a period, all costs incurred in generating revenue must be offset against revenue.

The Matching Concept refers to the practice of offsetting expenses against revenue based on the concept of "cause and effect". Matching involves appropriately associating related revenues and expenses. When matching against revenue, the timing of when a payment was made or received is considered irrelevant.

For instance, if FMtJesman receives commission in January 2005 for sales made in December 2004, the commission expense should be matched against the sales of December 2004 since this expense is related to producing revenue in that month. Therefore, adjustments are necessary for all lingering expenses, accrued revenues, prepaid expenses, unearned revenues, and so on due to this concept.

It is crucial to adhere to the revenue recognition principle when creating accounting statements for a period's end. This principle states that revenue must be recognized at the point of sale or service delivery. A sale is deemed complete once ownership of goods transfers to the buyer, and they are held legally liable for payment. Mr. A's order with Mr. B exemplifies this concept.

Based on the scenario, Mr. B sends the goods to Mr. A 15 days after receiving my order, and Mr. A makes payment for the goods 10 days after receiving them. Therefore, the completion of this transaction is determined by the date when Mr. A receives the goods rather than when I place the order or payment is made.