When it comes to financial accounting, you may be wondering what are the most important basic concepts and rules of accounting. After all, you need to know these basic terms in order to understand where your money is going. This should help explain how an income statement works and how much profitability a business can expect from a particular product or service. So, this is an article to help you learn the most important basic accounting concepts in a fun and entertaining way
Accruals are entries that are made to record transactions that occur in the future and are not recorded by cash. In accounting, they represent liabilities at the balance sheet date. “Future transactions” or “anticipated transactions” are some of the other names used for referring to accruals.
Examples of accruals include:
- Payroll expense (which is recorded when the employee is paid)
- Accounts payable (which is recorded when a customer pays for goods or services)
- Vendor payment (which is recorded when a vendor pays for goods or services)
2. Going concerned
This concept is defined as the probability of survival of an entity after the loss of its operational funds. The concept can be applied to a business entity, a branch, office or department. The going concern theory assumes that the business will have sufficient funds to continue operating in future. The core idea is that in order for a business to have value, it must be able to operate profitably over time. The concept is based on the idea that a business should continue to generate revenue after all of its debts are paid. This means that a company must be able to earn enough money so that there is some money left over after paying off all of its debts. Employees can use their paycheck stubs to get loans from financial institutions. A paystub maker is an easy way to create a printable pay stub from your personal information. It’s free and fast!
3. Conservatism concept
The conservatism concept is one of the most important concepts in modern rules of accounting, Visit this page for more info. Conservatism is a concept that is used in accounting to show how a company’s financial statement will change due to changes in the stock market, changes in the industry and other factors. This can be done through the use of conservatism accounting concepts, which are used to predict how a company’s stock price will change when there are changes in these factors. The concept states that, over a period of time, an account balance will be increased if there is a large increase in income or expense and decreased if there is a large decrease in income or expense. It is immensely useful in describing the tendency of a firm’s accounting policies to reflect historical trends and experience. Thus, conservatism means using accounting policies that have been proven to be effective in past transactions.
4. Matching Concept
In accounting, matching is a term that refers to the process of recording transactions as they happen. The concept means that you should record all transactions at their proper time and place and in their proper form. For example, an employee may not have been paid in full or on time if he was given an advance against his salary and received it later than expected. That transaction will not be recorded until it happens, but once it does, it is recorded correctly with the rest of the payroll records.
5. Economic Entity Concept
The economic entity concept refers to the fact that each business has its own assets and liabilities, which are recorded on its own financial statements. For example, if Good Company buys furniture from Bad Company, then Good Company will record a sale of furniture in its books while Bad Company will record a purchase of furniture in its books according to the rules set forth by generally accepted accounting principles. If Good Company sells goods to Good Customer in exchange for cash or payment on account, then Good Company will record this transaction as an asset sale transaction because it represents an increase in Good Company’s net worth (i.e., equity).