Almost everyone knows that accounts are monetary records of transactions. You probably keep simple records of your own income and expenditures, these would be basic accounts. You do this probably because you want to know whether you are spending more than you are earning or to make plans for holidays.
All business managers have to keep detailed records of all the transactions happening in the business including purchases, sales, and other financial transactions. The final accounts are financial records of business transactions, which are required by the stakeholders. The stakeholders are the people who have a direct interest in the business and its progress. There are external stakeholders, people or groups who are outside the business and internal stakeholders, people who work within the company. There are several different branches of accounting. All the businesses should always use the same accounting method because even an accounting principle states that the method of every calculation should be consistent. Businesses that operate on an international level can face problems if a store operating in a country uses other methods.
The double entry principle
Every time a transaction takes place within a business, for example, buying materials or selling goods to a customer, there are two sides to the transaction. This means that the entry should be recorded twice to make sure that the accounts are balanced.
Accruals arise when the benefit of the services has been taken but the payment is not yet made at the time accounts are drawn up, such as an electricity bill. An adjustment for the accrued expense has to be recorded because if the adjustment is omitted then the profits in the current accounting period will be overstated.
The money-measurement principle
It is important to use a consistent form of measuring the overall wealth of a firm. Only items and transactions can be measured in monetary terms are recorded in a business’s account books. The intellectual capital, for example, the skills and experience of the employees or directors should not be included. directors.