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Accounting

Basics

ASSETS = OWNER'S EQUITY + LIABILITIES

Creditors are a liability. (You owe them.) = Payables.
Increase of creditors is a source of cash.

Debtors are an asset. (They owe you.) = Receivables.
Increase of debtors is a consumption of cash.

Net Profit = Change in Owner's Equity.
Gross Profit = Sales less Cost of Sales.

Matching Convention: Profit is calculated by matching costs with the revenue recognized during the period.
Allocation Convention: First, determine all costs. Second, allocate costs to sales, inventory, etc.
Cost Convention: Items are valued at the historical cost of all input factors.
Conservatism Convention: Recognize costs immediately and revenue only when it is certain.
Accruals Convention: An obligation from a credit worthy customer may be regarded as a sale.

Cost of Raw Materials in P/L Account = Opening Inventory + Purchases – Closing Inventory
Valuation of Closing Inventory can be done by FIFO, LIFO or Average Value.......

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Approximate Word Count: 7780
Approximate Pages: 32 (250 words per double-spaced page)

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