Presentation on Principle of Accounting

Presentation on Principle of Accounting

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Presentation on Principle of Accounting - Overview

------------ PAGE 1 ------------ ------------ PAGE 2 ------------ BBA- 43 Spring - 2016 Section- C ------------ PAGE 3 ------------ Presentation on Principle of accounting ------------ PAGE 4 ------------ What is accounting? ------------ PAGE 5 ------------ accounting? ------------ PAGE 6 ------------ Principles of Accounting ------------ PAGE 7 ------------ Principles of accounting Cost principles Macthing principles Full discloser Principles Revenue Recognation principles Four Basic Principles ------------ PAGE 8 ------------ Cost Principle ------------ PAGE 9 ------------ C ost P rinciple ƒå The cost principle is one of the basic underlying guidelines in accounting. It is also known as the historical cost principle . The cost principle requires that assets be recorded at the cash amount ( or its equivalent) at the time that an asset is acquired. ƒå Assets should be shown on the balance sheet at the cost of purchase instead of current value. ------------ PAGE 10 ------------ Example- ƒå Daffodil Group founded in 1990. It purchased a building soon after in 1991 for $ 20,000. Total, some 25 plus years later, Daffodil Group is still in business. The original building is still on the balance sheet for $ 20,000 even though the current fair market value of the building is well over $ 200,000. Daffodil will keep the building on its balance sheet for $ 20,000 until it is either retired or sold. ------------ PAGE 11 ------------ Revenue Recognition Principle ------------ PAGE 12 ------------ Revenue Recognition Principle- According to revenue recognition principle , revenue should be recorded In the accounting period when it is earned ( service has been given or product has been sold ). It is not a matter whether cash has been received or not . ------------ PAGE 13 ------------ Example- If daffodil group completes its service at an agreed price of $ 1,000 , daffodil should recognize $ 1,000 of revenue as soon as its work is done… it does not matter whether daffodil group has been received cash or not. ------------ PAGE 14 ------------ Matching Principle ------------ PAGE 15 ------------ Matching Principle The matching principle requires that revenues and any related expenses be recognized together in the same period. Thus, if there is a cause- and- effect relationship between revenue and the expenses, record them at the same time. If there is no such relationship, then charge the cost to expense at once. In practice, matching is a combination of accrual accounting and the revenue recognition principle. ------------ PAGE 16 ------------ Example- several examples of the matching principle… ƒå Commission - A salesman earns a 5% commission on sales shipped and recorded in January. The commission of $ 5,000 is paid in February. You should record the commission expense in January. ƒå Depreciation - A company acquires production equipment for $ 100,000 that has a projected useful life of 10 years. It should charge the cost of the equipment to depreciation expense at the rate of $ 10,000 per year for ten years. ------------ PAGE 17 ------------ Full Discloser Principles ------------ PAGE 18 ------------ Full Discloser Principles ƒå The full disclosure principle states that any and all information that affects the full understanding of a company's financial statements must be include with the financial statements. ƒå Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers ------------ PAGE 19 ------------ Example- The various types of information subject to the Full Disclosure Principle include: ƒå A change in accounting practices and principles ƒå A change in the relationship with major trade partners ƒå Leases, franchises, and stock options ƒå Goodwill impairment ƒå Pending lawsuits, mergers or acquisition ------------ PAGE 20 ------------ Review of Principles of Accounting ------------ PAGE 21 ------------ Accounting ------------ PAGE 22 ------------ Accounting ------------ PAGE 23 ------------ Accounting ------------ PAGE 24 ------------ Accounting ------------ PAGE 25 ------------ Accounting
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