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PRINCIPLES OF ACCOUNTING REVISION - PRINCIPLES OF...

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PRINCIPLES OF ACCOUNTING REVISION TERM TO KNOW Account Payable A liability backed by the general reputation and credit standing of the debtor Account Receivable The right to receive cash in the future from the customer to whom the business has sold goods or for whom the business has performed services Accounting Equation The basic tool of accounting, stated as Assets = Liabilities + Equity Asset An economic resource that is expected to be of benefit in the future Balance sheet Report of an entity’s assets, liabilities and equity as of a specific date Expense Decrease in equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers Income statement Report of an entity’s revenues, expenses and net income/net loss for the period Liability An economic obligation payable to an individual or an organization outside the business Net income Excess of total revenues over total expenses Net loss Excess of total expenses over total revenues Revenue Amounts earned by delivering goods or services to customers Statement of Owner’s Equity Report that shows the change in capital for a period of time Transaction An event that affects the financial position of a particular entity and can be measured and recorded reliably Going concern concept This concept assumes that the entity will remain in operation for the forseeable future Partnership A business with two or more owners and not organized as a corporation Proprietorship A business with a single owner Stable Monetary Unit concept The concept that says that accountants assume that the dollar’s purchasing power is stable Faithful Representation Principle Faithful represented data are complete, neutral and free from material error Cost principle The principle means we list at the amount shown on the receipt – the actual amount paid (historical cost) Entity concept An entity refers to one business, separate from it owners Account The detailed record of all the changes that have occurred in a particular asset, liability, or OE during a period Double entry system A system of accounting where every transaction affects at least 2 acc Journal Book of accounts
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Posting Copying data from the journal to the ledger Normal balance
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