Fundamental Accounting and Equation Course Topics


Added on  2019-09-23

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Course Topics

2Course Topics (Fundamental accounting and equation)Overview Accounting fundamentals are basic in the corporate world. Considering the accounting equation shows the relationship between three elements of balance sheet assets, liabilities, and capital. This course aims to learn how to do fundamental accounting using equation. This course first covers the accounting principles and its concept. The second topic covers the various accounting components with its description. The third topic involves the accounting equation that shows the relationship between the three elements. Some sample examples of the accounting equation are also given for a better understanding. How the transactions recorded in the double-entry system and its impact accordingly. The various steps involved in accounting are also considered in this course. The main aim of this topic is to understand basic accounting to form a base for accounts. The further expansion of knowledge in accounting can be possible with this basic understanding.Similarly, basic accounting with expanded accounting reflects the relationship between accounting components. The difference between both the accounting equation is highlighted. In this accounting equation, the capital is classified into several elements, contribution, drawings, income, and expenses. The proportion of capital increases due to contribution and income, whereas drawing and expenses decrease the proportion of capital. In fundamental accounting, wewill learn about the equations and test the knowledge using a quiz after every two to three topics.Introduction

3Course Topics (Fundamental accounting and equation)The purpose in preparation of financial statements is to follow the generally accepted accounting principles (GAAP). This principle is based on fundamental accounting and concepts. The advanced accounting terms start from fundamental accounting. The objectives of financial accounting are to help the small business owner to large business holders. These fundamentals help to understand the equation that determines all business failure and success.The basic accounting principles are highlighted as going concern concept, accrual concept, entityconcept, periodicity concept, and the last monetary unit concept. This accounting assumption provides the guidelines in preparation, presentation, and interpretation of financial statements. Going concern refers to the consistency in business, the operation of the company can continue for an indefinite period. The accrual concept is recognized as the income earned not the income collected. The entity concept treated the business as one accounting entity. This entity is a separate legal entity in the eyes of law. Periodicity concept shows the period of business that is divided into its subtypes. In preparation of the various financial statement, the periodicity concept usually has equal length of the period. The last that is the monetary unit concept study the transaction in terms of currency. The elements of accounting include three elements namely assets, liabilities and capital. Assets are the owned resources of the company. They can be classified into two different parts that are current assets and non-current assets. Liabilities mean the obligation to the company to pay off the creditors and lenders. This is also classified into two parts namely current liabilities and non-current liabilities. Capital means the interest of the owner in the company's performance by deducting liabilities from the assets. In the accounting equation, when the transaction takes place the changes cause, only to stay the equation in balance. This happens because the changes occur in two aspects the account recorded in the financial statement

4Course Topics (Fundamental accounting and equation) Principles of fundamental accounting:A)Preparation of financial statementB)Presentation of financial statementC)Interpretation of financial statementThere are different assumptions in accounting concepts such as going concern, accrual system, entity concept, and monetary unit.Going concernGoing concern reflects the consistency of business over a long period. This concept is also known as continuity, the business will continue financial statement assumption according to going concern assumption the balance sheet items are recorded at its cost, not at fair market value. Long term assets are fully used and replaced in the books of accounts. Going concern means the continuity in business for an indefinite time, where financial statements are made keeping in mind that business will continuously exist in the future.Accrual basisThis method records the values of income when they are earned not when they are incurred. The collection of cash doesn't imply income and expenses are also different from the payment of cash.

5Course Topics (Fundamental accounting and equation)In September 2018 a company rendered some services to nelson and nelson paid for services in November 2018. The income is even the income has not earned.Separate entityThe separate entity concept refers to the sole proprietor can be differentiated in between businessassets and owned assets. For example, the proprietor owns a piece of machinery for the business,this will imply that the transaction takes place and if the proprietor takes a payment of salary, thiswill imply as drawings from the business.Periodic conceptThe indefinite life, the periodic concept follows two periods:A calendar year means a period of 12 months from January 1st to December 31st and the fiscal year starts from 1st of April to 31st of March. Monetary unit The monetary units have classified into two types- based on quantity and stable state of money. Quantity recorded the amount in terms of money. In financial statements this terms of money stated country wise currency.

6Course Topics (Fundamental accounting and equation)The stable state of a currency refers to the purchasing power of the company. The condition of inflation can be avoided. If any of the financial statements reported inflation with the accounting standards the rate must be restated.Matching PrincipleThe matching concept refers to the company's reporting where an expense incurred in the period in which associated income earned. After that, the treatment entered in the balance sheet results in liability. This is interlinked with accrual basis principles and adjustments.Revenue Recognition- In this accounting, based on the accrual concept, income is recorded at cost rather at fair market value; this concept follows the same income recorded in the financial statement performed when the sale takes place. In case though the amount is not yet collected.Expense Recognition- Expenses recognition: based on the accrual concept, expenses are also recorded incurred at cost rather at fair market value; this concept follows the same the expenses paid as recorded in the financial statement.Historical costThe items shown in the balance sheet are usually recorded at historical cost. Whereas various items shown in the financial statements are recorded at market value, current cost and discountedamount.

7Course Topics (Fundamental accounting and equation)Quiz: 1)What is the calendar year?The period from 1st January to 31st DecemberThe period from 1st April to 31st March The period starts from any of the monthsNone of the above2)What is the fiscal year?The period from 1st January to 31st DecemberThe period from 1st April to 31st March The period starts from any of the monthsNone of the above3)What are the two features of the monetary unit assumption?Quantity and stable stateStable and dependableBoth (A) and (B)All of the above 4)Which item shown in balance sheet asset sidePrepaid expensesPrepaid insuranceBoth (A) and (B)None of the above

8Course Topics (Fundamental accounting and equation)5)Which account is a current asset account?Bills payableClosing stockBuildingAny of theseAccount There are several transactions takes place every day in business entities. All the transaction from purchasers to suppliers should be performed and recorded. An account is a record of assets, liabilities, income, and expenses. The three main components of accounting are assets, liabilities,and capital.AssetsAssets are those resources that are owned and controlled to provide future benefits, this resource represents economic value. This is the owned resources of the company used in business. These assets can be classified as current assets or non-current assets.Current assetsCurrent assets are those assets that can be within one year. The examples of current assets are cash and cash equivalents, marketable securities, prepaid expenses, inventories. These assets are short term assets, the main element of a company's working capital.

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