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Nov 15, 2023
The fundamental of accounting 1 is the basic principles and concepts that form the foundation of accounting. These fundamentals include:
1. Entity Concept: This concept states that a business is considered a separate entity from its owners or shareholders. It ensures that the financial transactions of the business are recorded separately from personal transactions of the owners.
2. Going Concern Concept: This concept assumes that a business will continue to operate indefinitely unless there is evidence to the contrary. It allows for the preparation of financial statements based on the assumption that the business will continue its operations in the foreseeable future.
3. Monetary Unit Concept: This concept states that all financial transactions should be recorded and reported in a common monetary unit, such as the local currency. It allows for the measurement and comparison of financial information.
4. Cost Concept: This concept states that assets should be recorded at their original cost, which includes all costs necessary to acquire or produce the asset. It ensures that the financial statements reflect the historical cost of assets rather than their current market value.
5. Matching Concept: This concept states that expenses should be recognized and matched with the revenues they help generate in the same accounting period. It ensures that the financial statements accurately reflect the profitability of the business.
6. Accrual Concept: This concept states that revenues and expenses should be recognized when they are earned or incurred, regardless of when the cash is received or paid. It allows for a more accurate representation of the financial position and performance of the business.
These fundamentals provide a framework for recording, summarizing, and reporting financial information in a consistent and meaningful manner.
1. Entity Concept: This concept states that a business is considered a separate entity from its owners or shareholders. It ensures that the financial transactions of the business are recorded separately from personal transactions of the owners.
2. Going Concern Concept: This concept assumes that a business will continue to operate indefinitely unless there is evidence to the contrary. It allows for the preparation of financial statements based on the assumption that the business will continue its operations in the foreseeable future.
3. Monetary Unit Concept: This concept states that all financial transactions should be recorded and reported in a common monetary unit, such as the local currency. It allows for the measurement and comparison of financial information.
4. Cost Concept: This concept states that assets should be recorded at their original cost, which includes all costs necessary to acquire or produce the asset. It ensures that the financial statements reflect the historical cost of assets rather than their current market value.
5. Matching Concept: This concept states that expenses should be recognized and matched with the revenues they help generate in the same accounting period. It ensures that the financial statements accurately reflect the profitability of the business.
6. Accrual Concept: This concept states that revenues and expenses should be recognized when they are earned or incurred, regardless of when the cash is received or paid. It allows for a more accurate representation of the financial position and performance of the business.
These fundamentals provide a framework for recording, summarizing, and reporting financial information in a consistent and meaningful manner.
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