8 Essential Core Concepts of Accounting

If you want to understand accounting the best way is to know the core concepts of accounting. Here we mention eight essential points to describe core concepts of accounting. This is as below:

Table of Contents

Core concepts of accounting

Meaning of Dr. and Cr.

The term Dr. is the abbreviation of the work debtor, and the term Cr. is the abbreviation of the work creditor. In ca transaction two terms are used which are new to the students viz Dr and Cr.

You are to understand these two terms clearly otherwise you will not be able to understand the subject of accounting as a whole. You know that in each transaction one person is receiving the benefit and another person is giving the benefit. The receiver is called the debtor and given are called a creditor.

Meaning of Debit and Credit Balance

Debit balance means the debit side is greater than the credit side. And credit balance means the credit side is greater than the debit side.

Debit balances, which are not recoverable, are losses and which are coverable are assets. Credit balances, which are not t be paid, are profit credit balances. Which are to be paid, are liabilities.

Meaning of Journal

The Transactions in business are numerous and are of various types. In a book, all these transactions, which take place during business hours, are recorded first, in a book, which is known as the journal. So this is the book of original entry.

In fine, the journal is a daybook where the transactions of the day are entered. This book is kept chronologically i.e. in order of date. Subsequently, the entries are posted to the relative accounts in the same amount as either debtor or creditor.

Meaning of Ledger

After the preparation of the journal, the next task for a businessman is to record the transactions permanently and systematically. Ledger is a book in which all the accounts of businessmen are kept for permanent record.

The transaction with one person or thing may be numerous. Journal, where the first record is kept, deals with several persons, things, or nominal accounts to see the position of our business.

We can consult the ledger accounts more conveniently than journals because ledger accounts are the condensed form of journal entries. The ledger may also be defined as a book where the classification of journal entries is done.

Meaning of Trial Balance

A trial balance is a list of balances extracted from the ledger accounts to prove the arithmetical accuracy of the ledgers prepared. We know that each debit has a credit and vice-versa, under the double-entry system of accounting.

At the end of the financial period, before preparing final accounts we are to prove the correctness of different accounts in the ledger. As there are two-fold aspects of each transaction, the debit total of the trial balance must agree with the credit balance. See trail balance advantages and disadvantages.

Meaning of Bad Debt

Bad debt is a loss. It is the amount, which cannot be realized from the debtors. It is natural that we cannot realize our full debts always. The portion debtor which we cannot realize is actual bad debts during the concerned period, and it is shown in the trial balance.

The bad debts during the concerned period, and it is shown in the trial balance. The bad debt is a loss, so it is to be charged on the debit side of the profit and loss account.

Meaning of capital expenditure and Revenue Expenditure

The expenditure that is incurred to purchase permanent properties or to develop the productivity of such properties is known as capital expenditures.

Plant and machinery, land and buildings, furniture, etc. are examples of such expenditure. These are the permanent assets of a business concern.

On the other hand, the expenditure, which is incurred to run the business or rather the day-to-day expenses of a business, is called the revenue expenditure, i.e. salary, wages, rent, etc. are that example of such expenditures. These are essential expenses of a form to run its business.

Meaning of Balance Sheet

The Balance sheet is a statement of debit and credit balance of personal and real accounts extracted from the ledger books.

The result of nominal accounts after preparing to trade, and profit and loss accounts is also shown on the balance sheet.

In fine, it is the financial statement of business concerns, which discloses the assets and liabilities of the business at a particular date.

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8 Core Concepts of Accounting