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Unit 3: Principles of Accounting

z Money measurement concept tunes the system of accounting as fruitful in recording the Notes
transactions and events of the enterprise only in terms of money.
z Business entity concept treats the owner as totally a different entity from the business.
z Going concern concept deals with the quality of long lasting status of the business enterprise
irrespective of the owners' status, whether he is alive or not.
z Matching concept only makes the entire accounting system as meaningful to determine the
volume of earnings or losses of the firm at every level of transaction.

z Duality or Double entry accounting concept is the only concept which portrays the two
sides of a single transaction.

3.4 Keywords

Accrual System: The revenues are recognized only at the time of occurrence and expenses are
recognized only at the moment of incurring.
Assets: The economic resources of an entity. They include such items as cash, accounts receivable
(amounts owed to a firm by its customers), inventories, land, buildings, equipment, and even

intangible assets like patents and other legal rights and claims. Assets are presumed to entail

probable future economic benefits to the owner.
Book Value: It is the value of the asset maintained in the books of the account. The book value of
the asset could be computed as follows:
Book Value = Gross (Original) value of the asset – Accumulated depreciation
Liabilities: Amounts owed to others relating to loans, extensions of credit, and other obligations
arising in the course of business.

3.5 Self Assessment

Fill in the blanks:
1. Accounting records all the transactions which can be expressed either in ………………… .
2. Every financial transaction of the business has ………………… and recorded at two

places.
3. ………………… enables the comparison of the profit or performance of a business in a year

with the performance of another year.
4. The revenues are recognized only at the moment of ………………… .
5. Book Value = Gross (Original) value of the asset – ………………… .
6. The ………………… are the persons who owe to an enterprise an amount for receiving
goods or services on credit.
7. ………………… is a liability which arises only on the happening of an uncertain event.
8. ………………… = total assets – total liabilities
Choose the appropriate answers:

9. Three key activities of the accounting function are identifying transactions, recording
transactions, and communicating transactions. The proper order for these activities is
considered to be which of the following?
(a) Communicating, recording, and identifying.

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