Introduction to Accounting
Basics of financial accounting
Accounting is the process of recording, summarising, and reporting financial transactions.
Key accounting concepts:
- Going Concern — assumes a business will continue operating indefinitely.
- Accrual Concept — revenues and expenses recorded when earned/incurred, not when cash is received/paid.
- Consistency — use the same methods year to year.
- Prudence — record losses early, only recognise gains when certain.
Double-entry bookkeeping is the core system. Every transaction has two effects: one account is debited (Dr) and another is credited (Cr). Total debits always equal total credits. This is the accounting equation: Assets = Liabilities + Owner's Equity.
A journal entry is the first record of a transaction. Example: Buy inventory for Rs. 10,000 cash:
- Debit: Inventory Rs. 10,000 (asset increases)
- Credit: Cash Rs. 10,000 (asset decreases)
A trial balance lists all account balances at period end. If total debits = total credits, the books are balanced.
Key Points to Remember
- 1Accounting concepts
- 2Double-entry bookkeeping
- 3Journal entries
- 4Trial balance
Pakistan Example
A Karachi Cloth Merchant's Daily Books
A cloth merchant in Karachi's Bolton Market buys fabric on credit (accrual concept — recorded immediately before paying). Each transaction is a journal entry. At month-end, he prepares a trial balance to check every rupee is accounted for.
Quick Revision Infographic
Principles of Accounting — Quick Revision
Introduction to Accounting
Key Concepts
A Karachi Cloth Merchant's Daily Books
A cloth merchant in Karachi's Bolton Market buys fabric on credit (accrual concept — recorded immediately before paying). Each transaction is a journal entry. At month-end, he prepares a trial balance to check every rupee is accounted for.