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2. Discuss briefly the basic accounti ng concepts and
fundamental Accountingassumptions.
Accounting, as an information system is the process of
identifying, measuring and communicating theeconomic information of
an organization to its users who need the information for decision
making. Itidentifies transactions and events of a specific entity.
A transaction is an exchange in which eachparticipant receives or
sacrifices value (e.g. purchase of raw material). An event (whether
internal orexternal) is a happening of consequence to an entity
(e.g. use of raw material for production). Anentity means an
economic unit that performs economic activities.
Or
the art of recording, classifying and summarizing in a
significant manner and in terms of money,transactions and events,
which are, in part at least, of a financial character and
interpreting theresults thereof
Objective of Accounting:
i) To keeping systematic record:ii) To ascertain the results of
the operation:iii) To ascertain the financial position of the
business:iv) To portray the liquidity position:v) To protect
business propertiesvi) To facilitate rational decision making:vii)
To satisfy the requirements of law:
Functions of Accounting
i) Record Keeping Function:ii) Managerial Function:iii) Legal
Requirement function:iv) Language of Business:
Methods of Accounting
Business transactions are recorded in two different ways.
I) Single EntryII) Double Entry
Types of Accounting:
The object of book-keeping is to keep a complete record of all
the transactions that place in thebusiness. To achieve this object,
business transactions have been into three categories:
(i) Transactions relating to persons.
(ii) Transactions relating to properties and assets
(iii) Transactions relating to incomes and expenses.
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BRANCHES OF ACCOUNTING
The changing business scenario over the centuries gave rise to
specialized branches of accountingwhich could cater to the changing
requirements. The branches of accounting are;
i) Financial accounting;
ii) Cost accounting; and
iii) Management accounting.
Assumptions
The four main assumptions accountants use are: A company is an
entirely separate entity; a company
is a going concern; a company's assets and liabilities are
valued in a consistent unit of currency; anda company's lifespan
can be split into equal accounting periods.
3. Jou rnalize the following transactions for the month of
December 2010. Also state thenature of each account involved in the
journal entry.
4 A) What is meant by Replacement cos t?
Replacement cost is the price that an entity would pay to
replace an existing asset at current marketprices with a similar
asset. If the asset in question has been damaged, then the
replacement costrelates to the pre-damaged condition of the
asset.
The replacement cost of an asset may vary from the market value
of that specific asset, since theasset that would actually replace
it may have a different cost; the replacement asset only has
toperform the same functions as the original asset - it does not
have to be an exact copy of the originalasset.
Replacement cost is a common term used in insurance policies to
cover damage to a company'sassets.
