Bookkeeping & Accountancy Standard XII

Purpose of Bookkeeping

• Bookkeeping serves to systematically record, organize, and track a company’s financial transactions.
• It ensures accurate financial data, aiding in both management decision-making and compliance with regulations.

Financial Statement Summary

• The Income Statement summarizes a company's revenues and expenses over a specific time frame, revealing profitability.
• It is also known as the Profit and Loss Statement, reflecting net income or loss after all expenses are deducted from revenues.

Revenue Recognition Principle

• The Revenue Recognition Principle dictates that revenue should be recognized when it is earned and realizable, regardless of when cash is received.
• This principle is key for financial reporting, ensuring that income reflects actual economic activity.

Definition of Assets

• In accounting, 'assets' refer to resources owned by a company that hold economic value, expected to provide future benefits.
• Assets can be classified into current (short-term) and non-current (long-term) based on liquidity and time frame of use.

Role of a Trial Balance

• A trial balance is a report that lists the balances of all accounts in the general ledger, providing a snapshot of financial status.
• It is used to ensure that total debits equal total credits, serving as a tool for detecting errors before preparing financial statements.