h2 paa notes (basics)

h2 paa notes hi guys so these are basic stuff needed that i’ve consolidated in order to do the basic stuff in exams, not so in detail but useful to remember, will do more detailed in the future accounting concepts monetary concept money is used as the measuring unit in recording business transactions in order to have meaningful comparisons accounting entity concept all accounting transactions are recorded from the view point of the business whereas the owner’s personal transactions should not be included in the books of the business going concern a business is assumed to have indefinite lifetime unless there is credible evidence that it is going to shut down consistency concept once an accounting method is chosen, it should be included in future books in order to make meaningful decisions accounting period concept the accounting period principle presumes that operating life of a business can be divided into specific time periods (3,6,9 months) to facilitate meaningful reporting and comparison accrual basis of accounting concept based on the accrual basis in accounting, goods or services which are provided or performed by the business, must be recorded in the relevant accounting books within the

time period, regardless of whether cash is collected or not revenue recognition concept revenue is earned when services are provided/goods are delivered objectivity concept accounting information must be supported by reliable and verifiable evidence so that financial statements are free from biasness historical cost concept money values used in accounting should be derived only from factual events. assets and services acquired by the enterprise are recorded at the original cost of acquisition prudence concept provision should be made for all foreseeable losses but profits should not be recognised until their realisation is reasonably certain source documents sales invoice inform credit customer of the amount the amount owed debit note inform credit customer of the increased amount owed (customer undercharged) credit note inform credit customer of reduction amount owed (customer overcharged)

payment voucher records all payments by cash or cheque (pay money) receipt acknowledge cash payment received from customer (receive money) bank statement comes from bank to check and tally against business records supplier’s invoices for purchased of goods on credit accounting equation assets = liabilities + equity resources owned = resources supplied ******************************************** trial balance debit - assets, expenses, sales returns, dividends credit - liabilities, revenue, share capital debit column = credit column ******************************************** financial performance sales less: sales returns net sales less: cost of sales gross profit

other income xxx other expense ****************************************