BCOM101
BCOM101
BCOM101
ASSIGNMENT-JANUARY 2024
SUB. NAME: -FUNDAMENTALS OF ACCOUNTING B.COM –
101: Online Mode
Q-1 What are the basic fundamentals of accounting?
The basic fundamentals of accounting serve as the foundation for understanding and practicing
accounting principles and techniques. These fundamentals provide a framework for recording,
summarizing, and reporting financial transactions. Here are the key principles:
1. Entity Concept: This principle states that a business entity should be considered separate
from its owners or other entities. Business transactions should be recorded from the perspective of
the business itself, distinct from its owners' personal finances.
2. Money Measurement Concept: According to this principle, only transactions that can be
expressed in monetary terms should be recorded in the accounting system. Non-monetary
transactions or events, no matter how significant, are typically not recorded.
3. Going Concern Concept: This principle assumes that a business will continue to operate
indefinitely unless there is evidence to the contrary. As a result, financial statements are prepared
under the assumption that the business will continue its operations for the foreseeable future.
4. Cost Concept: The cost principle states that assets should be recorded in the accounting
records at their original cost to the business. This principle provides a reliable and objective basis
for valuing assets and ensures consistency in financial reporting.
5. Dual Aspect Concept (or Double-Entry Accounting): According to this principle, every
business transaction has two aspects: a debit and a credit. Debits and credits must always balance,
ensuring that the accounting equation (Assets = Liabilities + Equity) remains in equilibrium.
6. Conservatism Principle: The conservatism principle advises accountants to err on the side
of caution when making estimates or recording transactions. It suggests that potential losses should
be recognized immediately, while potential gains should only be recognized when realized.
7. Consistency Principle: This principle states that accounting methods and practices should
be applied consistently from one accounting period to another. Consistency ensures comparability
of financial information over time, allowing users to make meaningful analyses and decisions.
8. Materiality Principle: The materiality principle suggests that financial information should
only be disclosed if its omission or misstatement could influence the decisions of users.
Accountants should focus on reporting information that is relevant and material to users' decision-
making processes.
9. Matching Principle: According to this principle, expenses should be recognized in the
same period as the revenues they help generate. This ensures that financial statements accurately
reflect the results of operations for a given accounting period.
10. Realization (or Revenue Recognition) Principle: Revenue should be recognized when it
is earned and realizable, regardless of when cash is received. This principle ensures that revenue
is recorded in the period in which it is earned, reflecting the true economic value created by the
business.
Q-2 What is the importance of fundamental accounting?
The importance of fundamental accounting lies in its role as the backbone of financial reporting,
decision-making, and accountability within businesses and organizations. Here are several key
reasons why fundamental accounting is important:
1. Financial Reporting: Fundamental accounting principles provide the framework for
accurately recording, summarizing, and presenting financial information. This information is
essential for stakeholders such as investors, creditors, regulators, and management to assess the
financial health and performance of the organization.
2. Decision Making: Sound financial decisions rely on reliable and relevant information
provided by fundamental accounting practices. Managers use financial reports to evaluate
performance, allocate resources, set goals, and make strategic decisions that impact the
organization's future.
3. Investor Confidence: Investors and shareholders rely on financial statements prepared
using fundamental accounting principles to assess the company's profitability, solvency, and
overall financial stability. Transparent and accurate financial reporting enhances investor
confidence and fosters trust in the organization.
4. Compliance and Regulation: Fundamental accounting principles serve as the basis for
compliance with regulatory requirements and accounting standards, such as Generally Accepted
Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Adhering
to these standards ensures consistency, comparability, and transparency in financial reporting
across industries and jurisdictions.
5. Risk Management: Effective risk management relies on accurate financial information
provided by fundamental accounting practices. By identifying financial risks, such as liquidity
issues, excessive debt levels, or operational inefficiencies, organizations can implement strategies
to mitigate risks and safeguard their financial health.
6. Resource Allocation: Fundamental accounting helps organizations allocate resources
efficiently by providing insights into the costs, revenues, and profitability of various business
activities. This information enables management to prioritize investments, optimize operations,
and enhance overall performance.
7. Evaluation of Performance: Fundamental accounting facilitates the evaluation of the
organization's financial performance over time. By comparing financial statements across different
periods, stakeholders can assess trends, identify areas of improvement, and measure progress
towards achieving strategic objectives.
8. Transparency and Accountability: Transparent financial reporting, guided by
fundamental accounting principles, promotes accountability and integrity within organizations. It
enables stakeholders to hold management accountable for their stewardship of company resources
and ensures ethical business practices.
9. Credibility and Trust: Reliable financial information generated through fundamental
accounting practices enhances the credibility and trustworthiness of the organization in the eyes
of stakeholders. It fosters positive relationships with investors, creditors, customers, suppliers, and
employees, which are essential for long-term success and sustainability.
Q-10 What are the various kinds of errors? Which of these affect the agreement of trial balance?
Types of Errors not disclosed by a Trial Balance:
1. Errors of Omission: Errors of Omission occur when a transaction is fully skipped. This means
that the transaction has not been recorded either in the Journal or in Subsidiary Books. Under such
a situation, the agreement of trial balance remains unaffected, as the transaction has neither been
entered in the debit side nor the credit side of any account.
Example: Goods worth ₹8,000 sold to Mohan has not been recorded at all. This will not affect the
agreement of the trial balance, as neither it has been recorded on the debit side of Mohan’s account
nor on the credit side of the sales account.
2. Errors of Commission: Errors of Commission occur when a wrong amount has been recorded
either in the Journal or in Subsidiary Books. The trial balance, despite such errors, still continues
to tally because the same wrong amount has been recorded on both sides of the accounts.
Example: A cash purchase of ₹250 has been recorded in the Journal as ₹520. When this transaction
is posted in the ledger account, the amount of ₹ 520 is entered as purchase being debited with ₹520
and cash being credited with ₹520. No error can be detected by the trial balance.
3. Errors of Principle: Errors of Principle occur when Accounting Principles are not applied or are
violated while recording a transaction. These errors are of two types:
4. Compensating Errors: When the wrong amount posted in one account is compensated by the
wrong posting of the same amount in another account is called Compensating Errors.
Example: Ram’s account is debited by ₹400, instead of ₹500 and Sham’s account is credited by
₹600, instead of ₹700. The trial balance doesn’t show any disagreement due to the shortage of
₹100 being recorded on both sides of the account.