ACCOUNTING CONCEPTS
Define assets?
Possessions of the business.
Amounts that generate money for the business e.g. sales
Income(s)
Creditor
Someone to whom the business owes money
When income exceed expenses
Profit
The evidence of a transaction
Source document
This kind of DEBT can be settled within 12 months.
Book of first entry where information is recorded from the source document
Journal(s), e.g CPJ, CRJ, PCJ
Sole Proprietorship
Business owned by one person
Event between two or more parties, i.e. the exchange of goods or a service for money
A transaction
A business that buys and sells merchandise for profit
Trading business
Goods the business purchases for purposes of resale for profit
Trading stock
A business that renders a service
A service business
That which the owner withdraws from the business
Drawings
Be conservative and realistic in the disclosing of information
A collection of accounts of a business
Ledger
Debtor
Someone who owes the business money
Historical Cost Concept
Assets are always reflected at their original cost price
Assets = Owners’ Equity + Liabilities
Accounting Equation
Items that are of importance must be reflected separately
A financial statement showing the financial position of a business at a particular point in time
Balance Sheet/ Statement of financial position
Amounts directly or indirectly involved in operating the business, e.g. telephone, stationery
Expenses
The process of recording, reporting and interpretation of information of a business
Accounting
The interest of the owner in the business
Owner's Equity
For every debit there is a corresponding credit
Double entry principle
Business Entity rule
The affairs of the business and the owner must be kept separate