Accounting principles and financial statements

Accounting records, classifies and summarises business transactions in money terms so that owners, lenders, managers and tax authorities can judge performance and position. It rests on concepts that every exam question assumes: the business entity concept (the firm is separate from its owners), going concern (the firm will continue), money measurement (only money-expressed facts are recorded), accrual (revenue and expenses count when earned or incurred, not when cash moves) and consistency (the same methods year after year). Worked example: a proprietor who uses the firm's cash for a personal holiday has not reduced the firm's profit by that amount — the withdrawal is a drawing against capital, because the business entity is separate from the owner.