Tag Archives: Principles of Accounts

Classificiation of accounting ratios

17 三月

Accounting Ratio Unit Profitability Liquidity Management efficiency
Gross profit ratio     % Y    
Net Profit ratio     % Y    
Stock turnover rate times OR day, month Y   Y
Current ratio x:y   Y  
Quick ratio (Acid test ratio)     x:y   Y  
Return on capital employed     % Y    
Debtor collection period   day, month     Y
Creditor payment period     day, month     Y

Accounting prinicples (MR MA! HE Q C’S PiG!)

17 三月

The purpose is to make accounting information more objective, uniform and useful to different users.

  1. Entity
  2.  Historical cost
  3. Going concern
  4. Stable monetary measures
  5. Accrual
  6. Realisation
  7. Matching
  8. Prudence
  9. Materiality
  10. Consistency
  11. Quantifiability


A business is treated as an entity separate from its owner. Only transactions affecting the business should be recorded in the books of the business.

Historiacal cost

The assets of a frim are valued at their original cost of purchases or production. Any changes in their market value should be ignored.

Going concern

A business will continue to operate for the foreseeable future. Assets of a business should therefore be valued at historical cost.

Stable monetary measure

The assumption is that the value of money is constatn, ignoring the effects of inflation or deflation.


Revenues should be recognised when earned. And, expenses should be recognised when incurred, and not when money is received or paid.


It specifies the point in time at which revenue should be recognised and recorded in the books.


it states that revenue should be linked with its relevant expense or cost in the same period.


It ensures that the net assests and profits of a business are not overstated.


It is used to judge what sorts of transactions or items are significant and their classification in the financial statements.


A firm shoul keep using the same accounting policy or method for similar items. A change is allowed only if it can give a more accurate view of a business.


Accounting is concerned only with transactions measurable in units of money.


7 三月

Traditional Term Internationally Accepted Term
trade debtors accounts receivable, trade receivables
other debtors notes receivable, other receivables
trade creditors accounts payable, trade payable
other creditors notes payable, other payable
stocks inventory / inventories
opening balance beginning balance, balance bought down
closing balance ending balance, balance carried down
sundry expenses general expenses, miscellaneous expenses
profit and loss net income
profit and loss account net income account
fixed assets non-current assets, plant assets
long-term liabilities non-current liabilities
working capital net current assets
Year-end balancing day
carriage inwards freight in ;  transportation in
carriage outwards freight out ;  transportation out
stock unsold merchandise ; merchandise available for sale
cost of goods sold cost of sales
income statement statement of comprehensive income
balance sheet statement of financial position
discount allowed sale discount
discount received purchase discount
non-profit-making organisation not-for-profit organisation
to post an entry to transfer an entry
Appropriation Account Statement of change in equity
day books special journals
bad debts uncollectible debts ; irrecoverable debts

 Extracted from excellence

Trade Discount & Cash Discount

7 三月


1. A reduction granted by supplier from the list price of goods or services on business consideration re: buying in bulk for goods and longer period when in terms of services.

2. Not entered in the accounting records. 

3.  Not considered to be a part of the sale because the exchange agreement was based on the reduced price level. 

4. Allowed to promote the sales.

5. Shown by way of deduction in the invoice itself.

 6. Not opened in the ledger.

7. Allowed on purchase of goods.

8. May vary with the quantity of goods purchased or amount of purchases made.

CASH DISCOUNT  i.e Discounts Allowed (dr) and Discounts Received (cr)

1. A reduction granted by supplier from the invoice price in consideration of immediate or prompt payment.

2. An incentive in credit management to encourage prompt payment.

3. Not shown in the supplier bill or invoice.

4. Opened in the ledger.

5. Allowed on payment of money.

6. may vary with the time period within which payment is received.