Accounting Certificate Course in Ahmedabad Archives

Accounting is the process of recording financial transactions of a business.

The accounting process includes summarising, analysing, and reporting these transactions to oversight agencies, regulators, and tax collection entities.

Important Accounting Principles

Accounting Concepts refer to the basic assumptions, rules and principles which work as the basis of recording business transactions and preparing accounts.

The main objective of these concepts is to maintain uniformity and consistency in the accounting records. These concepts consisting of the very basis of accounting are as follows

Business/ Economic entity assumption: This concept assumes that for accounting purposes, the business enterprise and its owner are two separate entities. For example, when the owner invests money in the business, it is recorded as a liability of the business to the owner, similarly, when the owner takes away some business cash/goods for his personal use it is not treated as a business expense.

Thus the business entity concept states that any expenses incurred by the owner from the business for his personal needs will be considered as withdrawal and will be shown in the drawings. External stakeholders like; Government and investors use a company’s financial records to assess its performance. Hence the transactions must reflect the activities of the entity accurately

Money measurement concept: This concept assumes that all business transactions must be in terms of money, that is in the currency of a country. It is the reason why you have to complete your business bookkeeping for a foreign transaction in Home currency.

This concept helps in recording business transactions uniformly. While this concept guides the accountant on what to record and what not to record, here is a link to a certified account taxation course in Ahmedabad that is sure to guide all the CA aspirants or accounting professionals.

Going concern concept: It is also referred to as ‘the non-death principle’. This concept states that a business firm will continue to carry out its activities for an indefinite period. This concept helps in the preparation of financial statements also depreciation on a fixed asset is charged based on this concept. It helps the business judge it’s capacity to earn profits in future

Accounting period concept: As per the accounting period concept, all the transactions are recorded in the books of accounts for a specified period. Hence, goods purchased and sold during a period, rent, salaries etc paid for a period are accounted for and against that period only. It is because of this principle that your balance sheet always reports information as of a certain date and the profit and loss statement encompasses a specific date range. There are also some limitations to this concept like in case of inflation, there will be an overstatement in the net profit. In India accounting period is 1^st April to 31^st March for every year.

Accounting cost concept: This concept states that all the assets are recorded in the books of accounts at their purchase price. The effect of the cost concept is that if the business entity doesn’t pay for an asset, that item will not be shown in the books of accounts.

It limits the required amount of research and time to record or report financial information if the cost out weights the benefits. This basic accounting principle is important because it reminds the business owners not to confuse cost with value

Dual Aspect Concept: Dual Aspect is the foundation or basic principle of accounting. It provides the very basis of recording business transactions in the books of accounts. This concept assumes that every transaction has a dual effect i.e, it affects two accounts on their respective opposite sides.

Therefore, the transaction should be recorded in two places: e.g. a) giving of cash and b) Receiving of goods. Thus, the duality concept is commonly expressed in terms of the fundamental accounting equation

Assets = Liabilities + Capital

Realisation Concept: This concept states that the revenue from any business transaction should be included in the accounting records only when it is realised. The term realisation means the creation of a legal right to receive money.

For example: Selling goods is realisation, receiving orders is not. In short, the realisation occurs when the goods and services have been sold either for cash or credit. It also refers to the inflow of assets in the form of receivables. This concept helps in making the accounting information more objective. The rule also says that when risk and reward is transferred for goods or services from one person to another then the revenue should be recognised.

Accrual Concept: The meaning of accrual is something that becomes due, especially an amount of money that is yet to be paid or received at the end of the accounting period. It means that revenues are recognised when they are receivable.

It helps in knowing about the actual income and actual expenses during a particular period, which in turn helps in calculating the net profit of a business

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Matching concept: The matching concept states that the revenue and the expenses incurred to earn the revenues must belong to the same accounting period. It guides on how the expenses should be matched with revenue for determining the exact profit and loss for a particular period.

It is a very important concept for the investors/shareholders as it helps to know about the exact profit and loss of a business. This principle works with the revenue recognition principle ensuring all the revenues and expenses are recorded on the accrual basis

Principle of Conservatism: When there is more than one acceptable way to record a transaction, the principle of Conservatism instructs the accountant to record the expenses and liabilities as soon as possible. Using the principle the accountant will be more likely to anticipate losses in the reports

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Accounting involves keeping and maintaining the record of a corporation’s financial transactions in a…

Accounting involves keeping and maintaining the record of a corporation’s financial transactions in a given year. The annals are further used for analysis by the stakeholders, agencies, and tax collection bodies making accountants a crucial wedge in the company’s innards.

Of the concepts an accountant should be well-versed with, the ones of assets and liabilities are the most basal yet indispensable. Here we introduce you to the fundamentals of fixed assets and their accounting.

What Are Fixed Assets?

Fixed assets are the non-liquid physical possessions an organization holds to generate income over the long haul. They are also referred to as capital assets or property, plant, and equipment (PP&Es).

Fixed assets are not to be done away with in the same accounting year. The list comprehensively includes land, vehicles, office spaces, computers and software licensing, buildings, etc.

The principal criterion for anything to identify as a fixed asset is that it should be held by the company for more than one accounting year. Also, they are tangible and intangible. Long-term bonds and securities don’t make it to the list.

An esoteric aspect of fixed assets is that their book values usually exceed the capitalization limit as set by the organization. However, a company must be careful while setting a cap limit. A too higher or lower value can have far-reaching impacts on its balance sheet.

How? That requires us to delve deeper into the topic. Here is a verified Accounting Certificate Course in Ahmedabad you can take.

Initial Asset Inclusion

It is done at the time of purchase of an asset.

Now, before adding to its capital stock, a corporation makes the requisite assessments. It compares the total cost incurred on the asset with the gross amount of cash flow it leads to. If the deal seems profitable, it is sealed.

The initial recordation incorporates the cost of the assets, their transportation and installation amount, testing and preparation fees, taxes, and other such expenditures. Meanwhile, administrative charges, general overhead costs, and expenses not directly enhancing its utility are not recorded here.

When an asset is purchased at its market value, we note its fair value. On the other hand, the interest amount has to be mentioned while documenting for an asset bought on credit.

The case of an asset being exchanged for another one calls for recording the fair value of the new body. While if it is not possible to assess its cost, the price of the one given up is considered.

Depreciation of Assets

Assets start losing their productivity or we say, they get used up with time. We need to make allowances for this downturn. In accounting, depreciation is apportioning the cost of an asset over its useful life.

Of all the techniques to account for the depreciation of assets, the written down value method is extensively used. As it shows the fair value of the asset at every end of the year. In this method, depreciation is more in the initial year compares to subsequent years. Another method of depreciation is the straight-line method. Here, the accountants are required to subtract the salvage value of the asset from its cost. The resulting difference is then divided by the number of years the company intends to hold the asset for. The figure they arrive at is the yearly monthly depreciation of the asset. In this method, the Depreciation of asset is uniform during the life of the asset.

Companies can choose their modus operandi. However, as per the caveats of the IAS (International Accounting Standards), they are allowed to change it only once. To know more about the IAS and their impact in the field, you can go for this Accounting Course in Ahmedabad as recommended by our experts.

Disposal Of Assets

After a certain point, when assets cease to be profitable, they are to be exscinded. It is usually done when their useful lives come to an end. Sometimes, an unforeseen circumstance (for instance, unexpected obsolescence) forces the company to discard an asset.

It is however not necessary to throw a valuable possession away when it can be liquidated. The company can exchange the asset for newer ones. Also, they may sell it off. A price higher than the then book value of the asset marks a profit and a lower one points towards a loss.

Whatever the case may be, the loss of a company’s asset shows on its balance sheet. Fresh investments need to be undertaken.

Asset Impairment

Impairment of an asset is where its current carrying value exceeds the gross profits it is estimated to bring in. It is usually the result of unexpected predicaments.

In simpler words, asset impairment has to do with the chance that fixed capital may not be as economically viable as it is computed to be. Impairment leads to a radical slump in a business’ profits. Asset impairment on the balance sheet is associated with a corresponding loss in the income statement.

Intangible holdings such as copyrights and trademarks stand higher chances to get impaired. However, under circumstances like unexpected obsolescence, natural calamities, adverse market fluctuations, judgment failures or may be due to some unaccountable reason, fixed assets may undergo the same fate.

Accountants are supposed to be on the lookout for such incidents. They must warn the stakeholders and the decision-makers of the company’s state of affairs.

Disclosure Of Assets

A corporation does not want every confidential detail to be presented on its annual financial statements. However, certain norms formulated by the national and international bodies need to be followed. An organization has to make the following disclosures about its fixed assets.

The carrying value of the assets at the beginning and the end of each accounting year
The useful life of the assets
Rate of depreciation and the method used to calculate it
The effects of acquisitions, disposals, and net foreign exchange on the value of the assets
Impacts of revaluation

To learn about other disclosures, go to the link for this certified Accounting Training in Ahmedabad and stake in your growing accounting expertise.

The Strict Don’ts

While accounting for fixed assets, you need to eliminate the three commonly made mistakes.

Not considering expense costs transportation charges, taxes, and installation amount while recording the purchase of a new asset
Disregarding the alteration in the assets’ use while maintaining them
Ignoring record-keeping demands relating to insurance

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