Accounting – Accounting Concepts
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We wrote about four basic concept of accounting, i.e. going concern, business entity, money measurement and the cost concept.
The fifth concept is the Dual-Entry concept– The records should consider both the aspects of a transaction.
Some accounting propounders even call this the dual-aspect concept. The premise behind this concept is that each transaction will surely have at least two aspects to it. This concept leads to multiple equations or components which equate.
To start with, the total of all debits in a transaction has to be the same as all the credits.
The three (or six) rules of accounting clearly state this.
You buy stock in trade and either pay for it or create an obligation to pay for it.
Your vendor offers a discount, you end up reducing the payment due.
Sum of Assets will be equal to the sum of the business owners capital and external liabilities.
Assets = Capital + Liabilities
Thus each transaction will always have two aspects, which will form the basis of the accounting system.
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