Page 16 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes 1.2.3 Values

There are four different values in the business practices that should be followed or recorded in
the system of accounting:
1. Original Value: It is the value of the asset only at the moment of purchase or acquisition.

2. 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

3. Realizable Value: Value at which the assets are realized.
4. Present Value: Market value of the asset.

Did u know? What are the purposes of preparing financial statements?
1. Accounting provides necessary information for decisions to be taken initially and it
facilitates the enterprise to pave way for the implementation of actions.
2. It exhibits the financial track path and the position of the organization.
3. Being business in the dynamic environment, it is required to face the ever changing
environment. In order to meet the needs of the ever changing environment, the
policies are to be formulated for the smooth conduct of the business.

4. It equips the management to discharge the obligations at every moment.
5. Obligations to customers, investors, employees, to renovate/restructure and so on.

Self Assessment

Fill in the blanks:
6. The …………………… are recognized only at the moment of realization but the
…………………… are recognized at the moment of payment.
7. For ……………………, the value of the transaction is inevitable, to record values; the
classification of values must be essentially done.

8. …………………… the value of the asset only at the moment of purchase or acquisition.
1.3 Book-keeping

Book-keeping includes recording of journal, posting in ledgers and balancing of accounts. All the
records before the preparation of trail balance are the whole subject matter of book-keeping. Thus,
book-keeping many is defined as the science and art of recording transactions in money or money’s
worth so accurately and systematically, in a certain set of books, regularly that the true state of
businessman’s affairs can be correctly ascertained. Here it is important to note that only those
transactions related to business are recorded which can be expressed in terms of money.

1.3.1 Definition

“Book-keeping is the art of recording business transactions in a systematic manner”.
—A.H. Rosenkamph.

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