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Continued to record one side of a transaction. (á¨á˝áááľ/á¨áááἠáľá á°áśá˝á ááá¨áľ): áĽáá° Transposition errors (ááĽáŽá˝á áŚáł áááŤá¨áᥠ$540 áá° $450) áŤá áľá á°áśá˝á áááá¨áľ áá¨áłáᢠProvides a Basis for Adjusting Entries: The Unadjusted Trial Balance serves as the starting point for accountants to identify which accounts need adjustments (e.g., depreciation, accrued expenses, prepaid items). (áááľá°áŤá¨áŤ ááááŚá˝ áááť ááá): áá°á¨á᪠ááľá°áŤá¨áŤáá˝ (áááłáᥠDepreciations, Accruals, Prepaids) áááť áááááᢠServes as a Summary of the General Ledger: Instead of looking through hundreds of pages in the ledger to find account balances, an accountant can look at the Trial Balance to see a concise summary of all accounts. (á¨ááá áá áá፠áá ááááá): á¨á ááŤáł áážá˝á ááá á¨áááἠááá á¨áááá á áŤáááśá˝ áá¨á¨áť ááłáĽ á á ááľ áá˝ áá á áá áá áá፠áá°áŁáᢠJoin usđ https://t.me/Accountingfx
Final chap 2 1. Trial Balance Fundamentals A Trial Balance is a list of all general ledger accounts and their balances at a specific time, prepared to prove that Total Debits = Total Credits. Trial Balance áááľ á¨ááá á¨áááŤá ááá (General Ledger) á áŤáááśá˝ ááłáĽ áľáĽáľáĽ á˛ááᣠá¨á´á˘áľ (Debits) áĽá á¨ááŹá˛áľ (Credits) áľáá áĽáŠá áááá áá¨áá፠ááᢠAccounting Process FlowPlaintextLedger Accounts ââ> Unadjusted Trial Balance ââ> Adjusting Entries ââ> Adjusted Trial Balance ââ> Financial Statements Unadjusted Trial Balance: Prepared before adjusting entries are recorded. It represents the raw balances from the ledger. It often contains outdated figures (e.g., supplies used up during the month are not yet deducted). Unadjusted Trial Balance á¨ááááá á¨ááľá°áŤá¨áŤ ááááŚá˝ (Adjusting entries) á¨áááááŁá áŤá¸á á ááľ ááᢠáŤáá°áľá°áŤá¨á á¨ááá ááłáŚá˝á áááá (áááłáᥠá áአááľáĽ áĽá á áá á¨áá áááá˝ áá á áá°áááąá)ᢠAdjusted Trial Balance: Prepared after all adjusting entries have been journalized and posted. It shows the corrected, up-to-date balances of all accounts at the end of the period. Adjusted Trial Balance á¨ááááá ááá á¨ááľá°áŤá¨áŤ ááááŚá˝ á¨á°áááᥠá áá ááᢠá ááłáĽ áááᥠáá¨á¨áť áá á¨ááá á áŤáááśá˝ á¨á°áľá°áŤá¨áá áá áłá ááłáĽ áŤáłáŤáᢠCrucial Exam Tip: The Adjusted Trial Balance is the primary source used to prepare the financial statements (Income Statement, Balance Sheet, etc.) directly. á¨áá°á áĽáá: á¨áááááľ ááááŤáá˝á (Income Statement, Balance Sheet) á ááĽáł ááááááľ á¨ááá ááá áľ áááá á¨ááἠááá Adjusted Trial Balance ááᢠ2. Trial Balance Errors 1. Errors That WILL Cause the Trial Balance to Fail (Debits â Credits)These errors disrupt the mathematical balance, making total debits different from total credits: Posting only one side of a transaction: Recording a Debit but forgetting the Credit . Recording different amounts: Entering different numbers on the debit and credit sides.Mathematical errors: Incorrect calculation when adding up the Trial Balance columns. Trial Balance áĽáŠá áĽááłááá á¨ááŤá°áá áľá á°áśá˝ (Debits â Credits)á¨áľáŤáááá˝áá á áá°á áá áĽáť ááááἠ(á´á˘áąá áááጠááŹá˛áąá áááłáľ)á˘áá´á˘áľ áĽá ááŹá˛áľ á¨á°ááŤáŠ á¨áááἠáá áá˝á áááááĽá˘ á Trial Balance á ááśá˝ áá°áá áá á¨ááá አá¨áľááľ áľá á°áśá˝á˘ 2. Errors That WILL NOT Cause the Trial Balance to Fail (Debits = Credits, but still wrong!)These errors keep the debit and credit totals equal, but the accounting entries remain inaccurate:Error of Omission: A transaction is completely forgotten (not recorded at all).á ááá (á¨áááłáľ áľá á°áľ): á ááľ áľáŤáááá˝á áá á áá áłááááἠá˛ááá˘Error of Commission: Posting a transaction to the wrong account, but on the correct side (e.g., debiting Supplies instead of Equipment). (á¨á áŤáááľ ááłáłáľ): á áľááááá áá áá ááá áá áá° ááŠ/áľá á°áľ á áŤáááľ ááááἠ(eg,Equipment áŚáł Supplies áĽá á´á˘áľ ááľá¨á)ᢠDouble Recording: Recording the exact same transaction twice. (á°áá áááááĽ): á ááľá áľáŤáááá˝á áááľ áá á áľáá áááááĽá˘Offsetting Errors: Making two different errors of the same amount that cancel each other out. (á¨ááŁáŁá áľá á°áśá˝): áááľ á¨á°ááŤáŠ áľá á°áśá˝ á°á°áá°á áĽááľ á áĽááľ áá áá¸á á°ááŁáŁá á ááá á¨áá°á¨áá áľ áááłá˘ 3. Related Accounting Concepts & Principles The Matching Principle (Expense Recognition Principle): States that expenses must be matched and reported in the same accounting period as the revenues they helped to generate. á¨áᥠááŞáá˝ (Expenses) á¨á°áááľá áá˘áá˝ (Revenues) áááľáááľ á¨ááá áľ á¨ááłáĽ ááá áá (Accounting Period) áá á áĽá¨á ááááἠá ááŁá¸áᢠ4. The Importance / Functions of a Trial Balance To Verify or Prove Mathematical Accuracy (Debits = Credits): The most immediate purpose is to verify that total debits equal total credits. If they do not balance, it is a clear signal that an error has been made. (á¨áľááľ áľááááááľá áá¨áááĽ): á¨á´á˘áľ áĽá ááŹá˛áľ áľáá áĽáŠá áááá áŤá¨áááŁáᢠáĽáŠá áŤááá áľá á°áľ áááŠá á ááá˝ áŤáłáŤáᢠTo Facilitate the Preparation of Financial Statements: The Trial Balance acts as a summary document, making it easier and faster to organize data into the Balance Sheet and Income Statement. (á¨áááááľ ááááŤáá˝á ááááááľ áááá): áá¨ááá˝á á Income Statement áĽá Balance Sheet ááá ááá°áŤááľ áŤááťáťáᢠTo Detect Clerical Errors: Helps identify mistakes such as:Posting a debit as a credit. Transposition errors: Swapping figures (e.g., writing $540 as $450).Omission errors: Forgetting Join usđ @Accountingfx
Chpater 2 continued The basics of adjusting
Chapter 2 continued Accrual-Basis of Accounting versus Cash-Basis of Accounting (á ááŠá á á¤á˛áľ áĽá áŤá˝ á¤á˛áľ á áŤááá˛áá) The timing of when a business records its revenues and expenses determines which basis of accounting is being used. áá˘áá˝á (Revenues) áĽá ááŞáá˝á (Expenses) á áá áá ááááἠáĽááłááĽá á áááľáá á¨áá á°ááł áá á¨áľ á¨ááá ááá á¨á áŤááá˛áá ááááľ ááá°áá. 1. Accrual-Basis Accounting (á ááŠá á á¤á˛áľ á áŤááá˛áá) Under accrual-basis accounting, transactions are recorded in the periods in which the events occur, regardless of when the cash is received or paid. á á ááŠá á ááá áĽáááľ ááľáĽ ááĽááśá˝ á¨áááááĄáľ ááľá°áą á á°á¨á°á°á áľ á¨áá áá°áĽ ááľáĽ ááᤠáĽáŹ áááἠáá¨áá ááá áá°áĽá°áĽ á¨áááľ ááľáĽ á áááŁá. Key Components of Accrual Basis: Revenue Recognition (áá˘á áááááĽ):English: Revenue is recognized when it is earned (the service is performed or the goods are delivered), even if the customer has not paid yet. áᢠá¨ááááá á á áááááą á˛á°áĽ ááá ááá á˛á¸áĽ (Earned á˛á°á¨á) ááᤠá°áá áá ááááĄá áŁáá¨ááá áĽááł áá˘á áááááŁá.Expense Recognition (ááŞá áááááĽ): Expenses are recognized when they are incurred (used up or consumed), even if the cash has not been paid yet. ááŞáá˝ á¨áááááĄáľ áĽáŤ áá á˛áá ááá á˛á¨á°áą (Incurred á˛á°á¨á) ááᤠá áĽáŹ áááἠáŁáá¨ááá áĽááł ááŞá áááááŁá.IFRS / GAAP Status (á áá áŤáá á°ááŁáááľ) Mandatory. Under IAS 1 (Presentation of Financial Statements), companies must prepare their financial statements (except for the cash flow statement) using the accrual basis. á IAS 1 áááŞáŤ áá á¨áľ ááááá áľáá áľ á¨áááááľ áŞáááąá (á¨áááἠáá°áľ ááá፠ááŞ) á á ááŠá á ááá áááááľ á áá áľ. Key Advantage (áá áĽá á):It provides a true, fair, and accurate picture of a company's financial performance and profitability during a specific period by following the Matching Principle . ááŞá áĽá áá˘á á ááááľ (Matching Principle) á á፠áá áľ á¨á°áááá áľáááá á¨áľáá áąá áľáááááľ áŤáłáŤá. 2. Cash-Basis Accounting (áŤá˝ á¤á˛áľ á áŤááá˛áá)Under cash-basis accounting, transactions are recorded only when cash is actually exchanged (received or paid). á áŤá˝ á¤á˛áľ ááá áĽáááľ ááľáĽ ááĽááśá˝ á¨áááááĄáľ áľáááá áĽáŹ áááἠá áĽá á˛áᣠááá á˛á¨áá áĽáť áá. Key Components of Cash Basis: Revenue Recognition (áá˘á áááááĽ): revenue is recorded only when cash is received from the customer. áᢠá¨ááááá á á¨á°áá áá áĽáŹ áááἠá˛á°á á°áĽ áĽáť áá. Expense Recognition (ááŞá áááááĽ): Expenses are recorded only when cash is paid to suppliers or employees. á᪠á¨ááááá á áá á áŤá˘áá˝ ááá áá°áŤá°áá˝ áĽáŹ áááἠá˛á¨áá áĽáť áá.IFRS / GAAP Status (á áá áŤáá á°ááŁáááľ): Prohibited. It does not conform to international accounting standards because it violates the Revenue and Expense Recognition principles and is not in accordance with International Financial Reporting Standards (IFRS). á¨áᢠáĽá á᪠ááááá˘áŤ áááá˝á áľáááĽáľ á ááá á áá á°á¨á á°ááŁáááľ á¨ááá. Key Disadvantage (áá ááłáą): It can show a highly distorted and misleading picture of a company's financial health. For example, a company might perform $100,000 worth of work in December but report $0 profit if the client pays in January. á¨áľáá áąá áĽááá°á á áá ááŤáᣠáá˝ááᢠáááłáᥠáľáá áą á áłá áłáľ áá ᨠ100,000 áĽá áĽáŤ á ááś á°áá áá áááŤáá á áĽá ááľ áá á˘á¨áááᤠá áłá áłáľ áá áŤááá áľáá 0 áĽá á°áĽá áľáááááἠáá¨ááá áŤááŁáᢠMultiple Choice Question & SolutionQ1. Under the accrual-basis of accounting, adjusting entries are necessary to: A) Record transactions that management forgot to journalize. B) Adjust the Cash account to match the bank statement. C) Ensure that the revenue recognition and expense recognition principles are followed. D) Close the temporary accounts at the end of the year. Correct Answer: C Explanation: Adjusting entries are required at the end of an accounting period under the accrual basis to update accounts that are not yet recorded, ensuring revenues are recorded when earned and expenses when incurred. á á ááŠá á ááá áá á¨áľ á á áŤááá˛áá ááá áá áá¨á¨áť á¨ááľá°áŤá¨áŤ ááááŁáá˝ (Adjusting Entries) á¨ááŤáľááááľ áá˘áá˝ á á°ááá áľ áá áľ áĽá ááŞáá˝ á ááĄá áľ áá áľ á áľááá áááááŁá¸áá (Revenue & Expense Recognition principles) ááá¨ááἠááᢠJoin usđ https://t.me/Accountingfx
Chapter Two: Accounting Cycle for Service-giving Businesses áááŤá áááľáĄ áá áááááľ á°áŞ áľáá áśá˝ á¨ááłáĽ á áŤáŤá áá°áľ 1. Double Entry Accounting (áááľáŽá˝ á¨ááłáĽ ááááá˘áŤ áá´)Every transaction must affect at least two Accounts ááááá á¨áááἠáĽáá áľáá´ (ááĽááľ) á˛áŤááľá˘áŤááľ á¨áááľ ááłáĽ áá°áŚá˝ áá á°á áá áŤáłáľáŤáᢠDebit and credit for every Recording it must equal đ ááĽáŤááłááą áááᣠá¨á´á˘áľ (Debit) áĽá á¨ááŹá˛áľ (Credit) áá á áááá áĽáŠá ááá á áá áľá˘ Debit is the left side đ á´á˘áľ (Debit) áááľ á ááłáĽ áááἠá¨á፠á áŠá á¨áááἠáá¨á ááᢠCredit is the right side đ ááŹá˛áľ (Credit) áááľ á ááłáĽ áááἠá¨áá á áŠá á¨áááἠáá¨á ááᢠ2. Basic Steps in the Recording Process(á ááááἠáá°áľ ááľáĽ áŤá áŚáľáľ áá á¨áłá á á°á-á°á¨á°áá˝) In accounting, regardless of the size or type of business, practically every organization uses these three fundamental steps to record financial transactions before preparing financial statements. á á áŤááá˛áá ááľáĽ á¨áááľ áľáá áą áľáá á áá áľáá˝áĄ á¨áááááľ ááááŤáá˝á (Financial Statements) á¨áááááłá¸á á ááľ áááááá á¨áááἠáĽáá áľáá´ á áľáááľ áááááἠáŚáľáľ áá á¨áłá á á°á-á°á¨á°áá˝ á á á°á á°á¨á°á áá áááᢠThe recording process is a systematic way of taking raw business data (like receipts and invoices) and turning it into organized financial records á¨áááᣠáá°áľ (Recording Process) áááľ áŤáá°á°áŤá á¨áááľ áá¨ááá˝á (áĽáá° á°á¨á°áá˝á á¨áá፠á°ááśá˝) áá° á°á°áŤá á¨áááááľ áááἠá¨ááá¨á áá´ ááᢠáŚáľáą á á°á-á°á¨á°áá˝: Step 1: Analyze TransactionsâśStep 2: Enter in the JournalâśStep 3: Post to the Ledger3. Step 1: Analyze each transaction for its effects on the accounts( á á ááá á¨áááľ áĽáá áľáá´áá˝á á ááłáĽ áá°áĽ áá áŤááá á°á áá áá°áá°á) The accountant examines source documents (such as sales slips, checks, bills, or cash receipts) to determine which specific accounts are affected and whether they should be Debited or Credited. á áŤáááłááą á¨á°ááŤáŠ á¨áá፠á°ááśá˝áá á°á¨á°áá˝á (Source Documents - áĽáá° áźáᣠá°á¨á°á ááá°) á áááá¨áľáŁ ááĽááą á¨áľáášá ááłáŚá˝ áĽááłáááłáá° áĽá á¨áľáá á´á˘áľ (Debit) á¨áľáá á°áá ááŹá˛áľ (Credit) áá°á¨á áĽááłáá áľ áá°ááľááᢠKey Question (áá áĽáŤáá): "What happened, which accounts changed, and by how much? Step 2: Enter the transaction information in a Journal( á¨ááĽááąá áá¨á á áááá áá áááááĽ) The transaction is recorded chronologically (by date) in a Journal (often called the "book of original entry"). á¨á°á¨á°á°á ááĽááľ á áá (á áá á á°á-á°á¨á°á) áááá (Journal) á ááŁáá á¨ááááŞáŤ ááááá˘áŤ áááἠ("book of original entry") áá áááááŁáᢠA complete journal entry shows the date of the transaction, the accounts to be debited and credited, the amounts. đ á áááá áááᣠáá ááᣠá´á˘áľ áĽá ááŹá˛áľ á¨áá°á¨á ááłáŚá˝ áľáᣠá¨áááἠáá á áĽá á áá ááĽáŤáŞáŤ ááťááᢠWhy it matters (áĽá á): It prevents errors and presents the entire history of a transaction in one single place. đ áľá á°áľ áĽááłááá á áá¨áłáᤠá¨ááĽááąáá áá áłáŞá á á ááľ áŚáł áá á áááś áŤáłáŤáᢠStep 3: Transfer the journal entry to the appropriate accounts in the Ledger(á°á¨á 3ᥠá áááá á¨á°áááá áá áá¨á áá° ááá áááá - Posting) This transfer process is called Posting. The journal entries are copied into the Ledger (often called the "book of accounts"), which groups all transactions by individual account. áá á¨áááá áá°áľ ááľá˛áá (Posting) ááŁááᢠá áááá áá á¨á°ááááĄáľ ááĽááśá˝ áá° ááá (Ledger) ("book of accounts") áááá áŁáᤠááá áááá ááĽááśá˝ á á¨áŤáłá¸á á¨ááłáĽ á áááľ ááľáŚ áŤáľáááŁá¸ááᢠWhy it matters (áĽá á): While the journal lists transactions by date, the ledger groups them by account (e.g., all Cash transactions together). This allows the business to know the exact ending balance of any specific account at any time. đ áááá ááĽááśá˝á á áá á á°á á°á¨á°á á˛áŤáľáááĽáŁ ááá áá á ááłáĽ ááááľ (áááłá á áŤá˝/áĽáŹ áááἠáľá á¨á°á°á¨ááľá áĽáť á á ááľ áŚáł) á°áĽáľáŚ áŤáľáááŁáᢠ4. Types of Ledgers (á¨ááá á áááśá˝) General Ledger (GL) - áá ááá: The master ledger that contains all of the company's asset, liability, owner's equity, revenue, and expense accounts. á¨áľáá áąá ááĽáľ (Assets)ᣠááł (Liabilities)ᣠá¨áŁáá¤áľ áŤááłá (Owner's Equity)ᣠáᢠ(Revenues) áĽá ááŞáá˝á (Expenses) á áá á¨áŤá áá áááἠááᢠđ áĽá áááá ááá¸á ááłáŚá˝ (áááłá á¨á ááŤáł á°áá áá˝ á¨áá°á á°áĽ ááááĽ) á ááľ á á ááá "á°ááŁáŁáŞ ááłáĽ" (Control Account) ááááᢠSubsidiary Ledger (Sub-Ledger) - áááľ ááá: A supporting ledger that contains highly detailed, individual records that back up a specific control account in the General Ledger. á ááá ááá (General Ledger) ááľáĽ áŤááá á°ááŁáŁáŞ ááłáĽ á¨áá°áá á áŁá áááá á¨áá á¨áá á á°áá áá˝á ááá á á áŤá˘áá˝á áá¨á ááááᢠJoin usđ https://t.me/Accountingfx
Fundamental 1 reading short ppt đ Summarized 1 Summarized 2
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Core Assumptions of Accounting á áŤáą áá á¨áłá á¨á áŤááá˛áá áááśá˝ (Assumptions)Accounting assumptions are the basic guidelines and conditions under which a business operates and prepares its financial reports. á¨á áŤááá˛áá áááśá˝ á¨áááááľ ááááŤáá˝á á ááááá á áľ áá áĽáá° áááť á¨ááá ááá¸á áá á¨áłá áááŞáŤáá˝á á áľá-áááłáá˝ áá¸áá˘1. Economic Entity Assumption Definition: This assumption states that the activities of a business must be kept completely separate and distinct from the personal transactions of its owner(s) and any other business. áá áááľ á¨áľáá áą á¨áááľ áĽáá áľáá´áá˝ á¨áŁáá¤áą ᨠhis/her á¨áá á¨áááἠááĽááśá˝ áĽá á¨ááá˝ áľáá áśá˝ áá á áá á¨á°áአáĽá á¨á°á¨ááá ááá á ááŁá¸á áááᢠWhy it matters (á áááłá): It prevents the owner's personal expenses from mixing with and distorting the company's financial reports.á¨áŁáá¤áą á¨áá ááŞáá˝ á¨áľáá áą ááŞáá˝ áá á°ááá áá á¨áľáá áąá áĽááá°á á¨áľáá áá á áĽááłáŤáᥠáá¨ááááᢠExample (ááłá): If the owner of a grocery store buys a personal car for their family, this car cannot be recorded as an asset of the grocery store.á¨áąá áŁáá¤áľ áá¤á°á°áĄ áááá á¨ááá á¨áá ááŞá á˘ááᤠáá ááŞá á áąá á¨ááłáĽ áááἠáá áĽáá° áľáá áľ ááĽá¨áľ ááááἠá áá˝ááᢠ2. Going Concern Assumption(á¨ááŁáááľ áááľ) Definition: This assumption presumes that the business will continue to operate indefinitely (for the foreseeable future) and will not be closed or liquidated anytime soon. áá áááľ áľáá áą á á áἠáá ááľáĽ á áááá ááá á ááááľáᤠááááá ááá°áá°á áá áĽáŤáá áááĽáá áĽáá á¨ááááľáľá áľ á áľá-áááł ááᢠWhy it matters (á áááłá): This is the reason why we capitalize assets (like machinery) and depreciate them over many years, rather than expensing their full cost immediately. If we assumed the business was closing next week, we would have to value all assets at liquidation (sale) value today. áááłá áá˝áá˝á ááá ááááá˝á áľááá áá˛áŤáá á᪠á¨ááľá¨á ááá ᤠáľáá áą áá°ááľá áľááááĽá ááĽá¨áąá á á¨áááą á¨áá á áá˝ (Depreciation) áĽáŤá°á¨áá áá¨á á áááłáľ áĽááľááááἠáŤáľá˝áááá˘Example (ááłá): A company buys a machine for $100,000 (100,000 áĽá) and depreciates it over 10 years, assuming the company will still be in business to use it.á ááľ áľáá áľ á 100,000 áĽá áá˝á áááś á10 áááłáľ á á¨áááą áááá á˛áááľá¤ áľáá áą ááááĽááľ 10 áááłáľ áĽáŤ áá áááŤá á¨áá á¨ááŁáááľ áááľ á áááłáľ ááᢠ3. Monetary Unit Assumption(á¨áááἠáááŞáŤ áááľ) Definition: This assumption states that only transaction data that can be expressed in terms of money should be included in the accounting records.áá áááľ á áááἠ(Birr/Dollar) ááአá¨áá˝á á¨á˘áááľ ááĽááśá˝ áĽáť á ááłáĽ áááἠááľáĽ ááááἠá ááŁá¸á áááá˘Why it matters (á áááłá): It provides a common denominator to measure everything. It also assumes that the currency remains stable (ignores inflation). á áľáá áą ááľáĽ áŤááľá áááááá áአáአááĽááśá˝ ááááŤáľ á ááľ áἠáááŞáŤ (ááááĽ) áá°áŁáᢠExample (ááłá): Excellent customer service or having a highly skilled workforce cannot be recorded on the balance sheet because they cannot be easily measured in dollars/Birr.á¨áľáá áą á°áá áá˝ áłááááľáŁ á¨á°áŤá°áá˝ á¨áá°á áá ááľ ááá á¨áľáá áą áááŤá áľá (Goodwill) á áááἠá áľááá áááŤáľ áľáááá˝á á ááłáĽ áááἠáá áĽáá° ááĽá¨áľ á ááĽáł á áááááĄáᢠ4. Periodicity (Time Period) Assumption(á¨áá áá°áĽ / áá áłáááľ áááľ) Definition: This assumption states that the long life of a business can be divided into artificial time periods (such as months, quarters, or years) so that useful financial reports can be prepared for decision-makers. áá áááľ á¨áľáá áą áá á¨áĽáŤ ááá áá° á áá á°á á°áŤá˝ á¨áá ááá°áśá˝ (áĽáá° ááᣠáŠáĽ-áááľ ááá áááľ) á°á¨ááá áŞáááľ áá á¨áĽ á áá áľ áááá˘Why it matters (á áááłá): : Investors and banks cannot wait until a company closes down after 30 years to see if it was profitable. They need regular reports. This assumption is the foundation of accrual accounting and adjusting entries. áŁáááĽáśá˝ áĽá áŁááŽá˝ áľáá áą áľááá áááá áááá áľáá áą áĽáľáŞáá áľá¨áľ á30 áááłáľ áá á á á¨ááŁá¸ááᢠá á¨ááá áá¨á áááááᢠáá á áááľ áá ááŠá á á áŤááá˛áá (Accrual Accounting) áĽá áááľá°áŤá¨áŤ ááááŁáá˝ (Adjusting Entries) áá á¨áľ ááá˘Example (ááłá): Preparing monthly income statements and annual balance sheets.áááá á¨áľááá ááłáŤ ááááŤáá˝á áĽá áááłá á¨ááłáĽ áááá˝á (Balance Sheets) áááááľá˘
Cost and management l 1-5 Another good ppt Join usđ https://t.me/Accountingfx
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Measurement Principles in Accounting (á¨áááŞáŤ ááááá˝) IFRS (International Financial Reporting Standards) generally uses one of two primary measurement principles: Historical Cost Principle or Fair Value Principle. The selection of which principle to follow generally relates to trade-offs between Relevance and Faithful Representation. 1. Historical Cost Principle (á¨áłáŞáŤá áá ááá ) Definition: Assets must be recorded at their original purchase cost (the actual price paid) at the time of acquisition, regardless of changes in market value over time. (ááĽá¨áśá˝ ááááἠáŤááŁá¸á á á°ááá áľ áľáááá áá ááá á áá áľ á¨áá ááá ááᢠá¨áá ፠áá á˘á¨ááá áŁáá¨ááá á áááἠáá á¨áá°áá¨á á á°ááá áľ áá ááá˘) Key Advantage (áá áĽá á): It is highly objective and verifiable. You can easily prove the original transaction value using receipts, invoices, or contract documents. Disadvantage (ááłáą): It does not reflect the real, current value of the asset as time passes. Example (ááłá): If a company purchased land in 2010 for $50,000, and today that same land is worth $500,000, it must still be reported on the balance sheet at $50,000 under the historical cost principle. 2, Fair Value Principle (á¨áá áłá áá ፠áá ááá ) Definition: Assets and liabilities should be reported at the price that would be received to sell an asset or paid to transfer a liability today (current market price). (ááĽá¨áśá˝á ááłáá˝ á áá áŁáá¸á áľáááá á¨áá ፠áá áŞáááľ áá°á¨á á ááŁá¸á á¨áá ááá ááᢠáá á áĽáááá áá á áááááľ á˘áá¨áľáľáááśá˝ áá ááááá˘) Key Advantage (áá áĽá á): It is highly relevant for investors, management, and analysts who need to evaluate what an asset is worth today. Disadvantage (ááłáą): It can be subjective and difficult to verify if there is no active market or clear market quote for the specific asset.Example (ááłá): Investment securities like financial stocks or bonds are traded actively every day. Therefore, they are recorded using the Fair Value Principle because their exact current market price is straightforward to verify. The Fundamental Trade-off: Relevance vs. Faithful Representation Choosing between Historical Cost and Fair Value comes down to balancing two primary qualitative characteristics of useful financial information:                  THE ACCOUNTING TRADE-OFF           [ Fair Value ]                    [ Historical Cost ]             â                                   â             âźÂ                                   ⟠      RELEVANCE                      FAITHFUL REPRESENTATION (Current Market Value)               (Verifiable & Objective) 1. Relevance (á áľáááááľ / á ááŁáĽááľ) Definition: Information is relevant if it is capable of making a difference in a business decision. It helps financial statement users predict future outcomes or confirm/correct past evaluations. (á¨ááłáĽ áá¨á áá ááľ ááłá á°áŞ á áŤá á áá áĽá á ááłáá áá ááἠáááŁáľ á¨áá˝á ááá á áá áľá˘) 2. Faithful Representation (áłáá áááá / áááť) Definition: Accounting information must accurately reflect the underlying economic events. To achieve faithful representation, the numbers and descriptions must be complete, neutral (unbiased), and free from error. (á¨ááłáĽ áá¨áá á¨á°á¨ááááá á˘áŽáááŤá áááł á áľáááᣠá áłááááľá áŤá áľá á°áľ áááá˝ á áá áľá˘) Join our main practice channel đđ https://t.me/FX_Financess https://t.me/FX_Financess