Basic Concepts of Financial Accounting for CPA Exam |

Ledgers

Ledger or Book of Final Entry – Definition, Types, Examples and Purpose of Uses: Ledger is a book of accounts (also called book of final…
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Cash Discount (Prompt Payment Discount, Settlement Discount) – Definition, Calculation and its Types: Cash discount sometimes called prompt payment discount. It is the difference between the…
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Cash Book

Cash Book – Definition, Explanation, Preparation and its Types: Cash book is used to record all cash transactions. Cash transactions not only involve receipt and…
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General Journal

General Journal or Journal Proper – Definition and Explanation: Majority of all business transactions pass through books of original entry before being posted to ledgers. General…
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Return Outwards Journal

Return Outwards Journal or Return Outwards Day Book or (Purchase Returns) – Definition and Explanation: Return outwards journal sometimes call return outwards day book or…
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Return Inwards Journal

Return Inwards Journal or Return Inwards Day Book or (Sales Returns) – Definition and Explanation: Return inwards journal sometimes called return inwards day book or…
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Purchases Journal

Purchases Journal or Purchases Day Book – Definition and Explanation: Purchases of goods may be on cash or on credit basis. Purchases journal sometimes called…
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Sales Journal

Sales Journal or Sales Day Book – Definition and Explanation: The sales of goods may be on cash or on credit basis. Cash sales are…
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Books of Original Entry

Books of Original Entry or Books of Prime Entry or Day Books and Journal – Introduction and Definition: A business must ensure that its accounting…
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Effects of Incorrect Treatment of Capital and Revenue Items

As we know about capital and revenue items. These are: (1) Capital Expenditure (2) Revenue Expenditure (3) Capital Receipt (4) Revenue Receipt Effects of Wrong/Incorrect…
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Capital Receipts and Revenue Receipts

Definition of Receipts and its Types: Receipts are the amounts actually received in cash. The receipts may be categorized as: (1) Capital Receipts and (2)…
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Capital Expenditure and Revenue Expenditure

Before this article, we should know the difference between terms; expenditure and expense. Expenditure is an amount incurred by a business to purchase assets and…
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Capital and Revenue Items

Introduction – Capital and Revenue Items: In order to know the fair performance and financial standing of a business; the nature of business transactions taking…
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Revaluation of Assets Concept

Definition – Accounting Concept for Revaluation of Assets: Accounting concept for revaluation of assets defines and states that, it is proper adjustment made to the…
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Money Measurement Concept of Accounting

Definition, Explanation and Use of Money Measurement Concept (Convention, Principle) of Accounting or Monetary Unit Assumption: Money measurement concept (convention or principle) of accounting or…
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Objectivity Concept of Accounting

Definition, Explanation and Use of Objectivity Concept (Convention, Principle) of Accounting: Objectivity concept (convention or principle) of accounting defines and states that while preparing the…
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Substance Over Form Concept of Accounting

Definition of Substance Over Form Concept (Convention, Principle) of Accounting: Under Substance over form concept (convention, principle) of accounting, “transactions should be dealt with reference…
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Accrual Concept of Accounting

Definition, Explanation and Application of Accrual Concept (Convention, Principle) of Accounting: Accrual is derived from the verb “accrue” which means to increase, to accumulate or…
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Matching Concept of Accounting

Definition of Matching Concept (Convention or Principle) of Accounting: Matching concept (convention or principle) of accounting defines and states that “while preparing the income statement,…
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Materiality Concept of Accounting

Definition of Materiality Concept (Convention, Principle) of Accounting: Materiality concept (convention, principle) of accounting defines and states that “items, transactions or an event which significantly…
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Consistency Principle of Accounting

Definition of Consistency Principle (Concept, Convention) of Accounting: Consistency principle (concept, convention) of accounting defines and states that, “accounting transactions and accounting methods should be…
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Historical Cost Concept of Accounting

Definition of Historical Cost Concept (Convention, Principle) or Cost Principle of Accounting: Historical cost concept (convention, principle) or cost principle of accounting states and defines…
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Going Concern Concept of Accounting

Definition of Going Concern Concept (Convention, Principle): “Going concern concept (convention, principle) defines and assumes that a business intends to operate as a business unit for…
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Prudence Concept of Accounting

Definition of Prudence Concept (Convention, Principle) or Conservatism Concept of Accounting: Prudence concept (convention, principle) of accounting is also well known as conservatism concept. This…
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Business Entity Concept of Accounting

Definition of Business Entity Concept (Convention, Principle): “Business entity concept (convention, principle) of accounting entails that business is to be treated as a self-contained entity….
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Basic Accounting Concepts and Conventions

Basic Accounting Concepts, Conventions, Assumptions and Principles: Accounting concepts, conventions, assumptions and principles suggest logical and generally accepted accounting treatments and principles. These concepts are…
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Accounting Treatment of Depreciation for Non Current Assets

Following are the accounting procedures or treatment for depreciation non-current assets. The journal entries are as: (1) Journal entry to record purchase of non-current assets:…
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Provision for Depreciation

Definition of Provision for Depreciation or Accumulated Depreciation or (Difference between Depreciation and Provision for Depreciation): Depreciation is an expense which is charged in the current year’s…
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Features of Straight Line and Reducing Balance Methods of Depreciation

Features and Differences – Straight Line and Reducing Balance Methods: Straight Line Method: (1) Depreciation rate and amount remain the same in each year of…
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Annual Depreciation under Reducing Balance and Straight Line Methods

Under annual depreciation method, higher depreciation charge is recognized in earlier years of asset’s life but charges lower depreciation in the later years compared to…
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Reducing Balance Method

Reducing Balance Method or Diminishing Balance Method or Written Down Value Method of Depreciation: Reducing balance method is also named as diminishing balance or written…
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Straight Line Depreciation Method or Original Cost Method

Straight line depreciation method or original cost method is the simplest and most commonly used depreciation method. Under this method, the difference between the original…
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Revaluation Depreciation Method

Revaluation depreciation method is usually used to calculate depreciation of assets where, there are numerous small identifiable assets of low value but nevertheless of lasting…
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Methods for Calculating Depreciation

Different methods are used to calculate the amount of depreciation charge. These are following: (1) Revaluation Depreciation Method (2) Straight Line Depreciation Method or Original…
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Characteristics of Depreciation

Depreciation has the following characteristics or attributes: (1) Depreciation is only charged on non-current assets. (2) Depreciation occurs from the date of purchase of an…
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Factors for Calculating Depreciation

While calculating the depreciation of non-current assets, following factors involve and must always be consider: (1) Cost Factor – The Original Cost of Asset: The cost…
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Depreciation

Non-Current Assets and Depreciation – Definition, Concept and Explanation: Non-current assets are purchased by a business not for resale but to be used within the…
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Accounting Treatment of Provisions for Doubtful Debts and Discounts Allowed

There are following important points related to accounting treatment of provisions for doubtful debts and discounts allowed: (1) Both provisions for doubtful debts and provision for…
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Advantages of Offering Cash Discounts

There are following benefits or advantages of offering cash discounts in business: (1) Discount offer induce a trade receivable to pay early, which not only…
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Cash Discounts Allowed and Provision for Discounts Allowed

Cash Discounts Allowed – Definition: Some firms allow cash discounts to their customers for prompt payment. In that case at year end, the outstanding trade…
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Recovery of Bad Debts and their Journal Entries

Recovery of Bad Debts – Concept, Accounting Journal Entries and Solved Example: Some times business receives a pleasant surprise, when it recovers the bad debts which…
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Aging Schedule of Trade Receivables

Definition and Concept of Aging Schedule for Calculating Provision for Doubtful Debts: Sometimes provision for doubtful debt is calculated with the help of aging schedule…
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Provision for Doubtful Debts

Concept and Definition of Provision for Doubtful Debts or Allowance for Bad Debts or Allowance for Un-Collectible Accounts: Businesses usually create a provision for doubtful…
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Bad Debts and Doubtful Debts

Bad Debts, Trade Receivables and Doubtful Debts – Definition, Example, General Journal Entry and their Difference: Bad Debts: A bad debt is a debt that is…
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Purpose and Use of Bank Reconciliation Statement

Purpose of Bank Reconciliation Statement (BRS): The purpose of bank reconciliation statement is to carried out uncover and correct any errors in the recording of…
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Steps and Rules for Preparing a Bank Reconciliation Statement

The process for preparing the bank reconciliation statement (BRS) follows the below steps or method: (1) Compare the both opening balances of cash book and…
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Bank Reconciliation Statement

Definition, Meaning and Need for BRS: If there is any discrepancy between the cash book balance and that of bank statement, then the business prepares…
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Absorption of Overheads

Absorption of Overheads or Cost Recovered – Definition, Procedure and Formula: Once total production overheads (calculation of overhead absorption rate) of production cost centers are…
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Plant Wide and Departmental Overhead Absorption Rates

Plant or Factory Wide (Single) Overhead Absorption Rate – Definition, Formula and Use: Plant or factory wide (single or blanket) rate is used for the…
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Calculation of Overhead Absorption Rate

Basis (Methods) for Calculating Overhead Absorption Rate: The production overheads calculated for each production department after going through apportionment and allotment are used to calculate…
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Basic Concepts of Financial Accounting for CPA Exam - Online Syllabus Topics for Financial Accounting Course