Chapter 1: Introduction to Accounting

The following characteristics are violated:

1. The data will be erroneous or biased, which impacts reliability.

2. The information loses validity and hence loses relevance.

3. Records will be difficult to understand and will be prone to errors which impact understandability.

4. Comparison with other reports will be difficult, resulting in biased interpretations, hence impacting comparability.

The role of accounting has evolved over the years. Earlier, it was concerned only with record keeping; in current times, it is more concerned with providing business information to relevant users of the information. These changes are the result of the dynamic changes in business structure, which has become more competitive nowadays.

Fixed assets: Fixed assets are long-term assets and are not for sale. They bring profits over the years to the business; for example, land, buildings, machinery, etc.

Revenue: Revenue is income earned through routine activities of a business, such as an amount that is received from the sales of goods, services provided to customers, the commission received, and royalties.

Expenses: Expenses are costs incurred by the business during the process of earning revenue. Examples are depreciation, rent, wages and salaries.

Short-term liabilities: Liabilities that are to be cleared off within a year; for example, creditors, bank overdraft, outstanding wages, bills payable, short-term loans, etc.

Capital: The sum financed by the owner of the firm, either in the form of cash or asset. It is recorded as a liability in the balance sheet.

Revenue: Revenue is income earned through routine activities of business such as royalties, the amount received from sales of goods, services to customers, and the commission received.

Expenses: Expenses are costs incurred by the business during the process of earning revenue. Examples are depreciation, rent, wages and salaries.

Accounting is the language of business. Hence, it is necessary for business students and others to familiarise themselves with the accounting discipline. The following reasons are also important:

1. Understand various principles of accounting.

2. Learn how to maintain the records of business.

3. Summarising account information to study the financial position of a business.

4. Accurate interpretation of accounting information.