Chapter 5 - Introduction To The Worksheet Flashcards
- Understand the concept of duality and how it applies to the recording of transactions. - Understand the concept of prudence and its importance in financial statement preparation. - Be able to record transactions following the principles of double entry using a worksheet as the format for recording those transactions. - Be able to extract a statement of financial position at the end of a period of time. - Be able to produce a simple income statement for a period of time. - Be able to produ
Key Concept: The principle of duality
The principle of duality is the basis of the double-entry book-keeping system on which accounting is based. It states that: Every transaction has two opposite and equal sides.
Key Concept: Application of the principle of duality
Applying the duality principle to our equation we find that: If we increase our assets, we must have:
- reduced another asset, or
- increased our liabilities, or
- made a profit, or
- increased our owners’ equity.
In other words, the principle of duality when applied to the accounting equation holds that both sides of the equation must always be equal.
Key Concept: Prudence
Profits should not be anticipated and revenue is not recognized until reasonable certainty exists. However, losses and loss of value of assets should be recognized when they are likely to occur.
