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DOUBL ENTRY BOOKKEEPING EXAMPLES MANUAL
DOUBL ENTRY BOOKKEEPING EXAMPLES FULL

In addition, the accrual principle in practical terms states: “ Revenues and expenses are recognized when occurred, independently from cash disbursement.” These principles are the “ten commandments” for the accountant.

Conservatism Principle: When in doubt between $80 and $100 loss, your accountant has to choose the most conservative alternative, report $100.

Materiality Principle: when you report the financials, it will be allowed to round them, since if an amount is insignificant can be neglected by your accountant.

Revenue Recognition Principle: if you sell a product in January 2015 but you will receive the money from the customer in April 2015, you will report the sale in January, since it was the period when the actual sale was realizable.

You will report the expense when it was recognized and not when actual cash disbursed (accrual principle). If you decide to pay your employees a bonus related to 2015 but you pay it in 2016, you still will report it as 2015.

Matching Principle: If you incur an expense, it should be matched with the revenues, according to the accrual principle.

Going Concern: The accountant assumes that your business will continue its operations in the foreseeable future.

DOUBL ENTRY BOOKKEEPING EXAMPLES FULL

Full Disclosure Principle: You have to report all the relevant information of the business in the financial statements or in the footnotes.

Cost Principle: If you buy an item in 1980 at $100, it will be reported on your balance sheet as worth $100 today, independently on inflation or appreciation of the asset.

Time Period Assumption: Business activity you undertake can be reported in separated time intervals, such as weeks, months, quarters or fiscal years.

Monetary Unit Assumption: The Business activity you undertake is considered in US Dollars.

Economic entity assumption: If you have a business, even if you are a sole proprietor, the accountant will consider yourself separately from your business.

Finally, the first set of GAAP was created and in 1973 and the CAP board was substituted by the Financial Accounting Standards Board (FASB).įrom this work came out 10 basic principles, that are the foundation of the modern accounting system in US:

The AIA subsequently instituted an organism to specifically create these principles: The Committee on Accounting Procedure (CAP). In 1934, the SEC, assisted by the American Institute of Accountants (AIA), started to work on the GAAP. In the decade after the 1929 market crash institutions such as the Securities and Exchange Commission were created. Indeed, after the 1929 market crash,Īmerican government felt the necessity to create a set of rules to discipline and conform the accounting system, and avoid what had happened.

Today we have two main accepted frameworks, globally: GAAP and IFRS in this chapter I will focus mainly on GAAP. The general accepted accounting principles are standards and procedures used by organizations to submit their financial statements. GAAP PrinciplesĪlthough, the fundamental accounting system hasn’t changed, the principle and rules applying today have been updated in the last century. If you either own a small business, or you are a CFO, CEO, COO, a common citizen, you have to understand accounting to recognize what is behind each one of the 14 trillions transactions per day, just in US.

DOUBL ENTRY BOOKKEEPING EXAMPLES MANUAL

This practical manual gave official birth to a system that is still used in current accounting.Įven people who hate accounting recognize the importance of it. Born in 1494, when a Venetian Merchant, Luca Pacioli, in his “Summa de Arithmetica, Geometria, Proportioni et Proportionailta”, described for the first time the double entry-system. The current accounting system is one of the few survivors.

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