Principles of Accounting (AKU-ACC)
Topic 1 of 7Aga Khan Board

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.

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    Double Entry System