Introduction, Review of Accounting Process and Financial Statements Essay

Introduction, Review of Accounting Process and Financial Statements case assignment 1 - Essay Example Double Entry system of accounting is a standard used to record all the transactions at least in two accounts. This results in the one or more accounts being debited as well as credited. This system of accounting is very effective as it permits more accuracy in checking and also permits more balanced accounts. This is mainly because all the accounts with a debit balance need to equal the credit balance of the accounts as well (Burke & Litwin). The original monetary value of a good is referred to as the historical cost. This has been criticized for a number of inaccuracies. Historical costing does not take into account the gains or losses unless they have been realised. However use of historical costing is very helpful and provides the management with a better view of the fair value of the item or also the market value. This helps the management make more informed decisions and make more educated strategies as well. Although historical costs have been very helpful for the management, there are a number of criticisms that relate to the same as well. It has been noted that historical costs only considers the cost allocations and does not consider the value of the assets. Accrual basis accounting is one where all the transactions, i.e. the incomes and expenses are recorded when the transactions occur. On the other hand, cash basis accounting refers to the transactions that are recorded when the income or expenditure is received or paid. There is no focus on the date of the transaction. However the accrual basis is one of the most popular systems of accounting and is followed by most companies and is also required to be followed by law. The accrual basis of accounting provides a clear picture of the financial state of the business. Current assets and liabilities refer to the short terms assets and liabilities, i.e. those that need to be settled within one year. On the other hand, a non current asset or