Business Entity Principle:The concept of business entity assumes that business has a distinct and separate entity from its owners.For the purpose of accounting, business and owner are supposed to be treated as two separate entities.Business transactions are recorded from the business point of view and not from that of the owners.The capital invested by the owner in the business is considered as a liability of the business to the owner while money withdrawn out of the business for personal use by the owner is considered as drawings which is ultimately deducted from the capital leading to the reduction in liability of the business.
1. Identification and recording of transactions
The primary object of accounting is to identify the financial transactions and to record these systematically in the books of accounts. As a result, the true nature of each and every transaction is known without much exercise of memory.
With this end in view the transactions are primarily recorded in general and in a special journal and later on permanently various accounts are kept in the ledger.
2. Ascertainment of results
Every business concern is interested to know its operating results at the end of a particular period.
The amount of profit or loss for a particular period of a business concern can be ascertained by preparing income statement with the help of ledger account balances of revenue nature.
Surplus or deficit of revenue for a particular period of a non-trading concern can also be ascertained by preparing income and expenditure account or statement.
3. Ascertainment of financial affairs
Ascertainment of debts-liabilities, property, and assets i.e. total financial affairs of an organization at a particular date is another important object of Accounting.
Financial affairs of a concern at a particular date can be ascertained by preparing a balance sheet.
The balance sheet is the statement of assets and liabilities of a concern at a particular date.
4. Keeping accounts of cash
Cash book is a prominent book of the books of accounts. Cash receipts and cash payments are accounted for in this book. A number of daily cash receipts, payments, cash in hand and cash at the bank can be known from this book.
Fraud, forgery, and misappropriation of money are reduced by keeping cash book scientifically and accurately.
5. Control over assets and liabilities
For running a business successfully a businessman is to acquire various assets like land, building, machinery etc.
He is to face various debts and liabilities like accounts payable, notes payable, loan, bank overdraft etc. side by side with die acquisition of assets.
The actual position of these debts-liabilities, property, and assets can be ascertained through the proper keeping of accounts. A businessman can take right steps for controlling quantity of assets decrease and liability increase.
6. Controlling money defalcation and cost
Prevention of money defalcation through fraud and forgery and controlling of the cost of a concern are also the main objects of Accounting.
Prevention of money defalcation and cost control become easier if accounts are kept scientifically.
7. Providing economic data
Another noble object of Accounting is to provide the concerned parties with all economic information preparing financial statements and reports etc. in time.
8. Helping tax fixation
Accounts prepared on the basis of accepted accounting principles in considered reliable to the income tax and VAT authorities for easy determination and settlement of tax and VAT.
9. Determination and evaluation of policy
The object of Accounting is to help the management in determining and evaluating the management policies in running the business successfully by supplying necessary, information, interpreting and analyzing the financial statements.
10. Testing arithmetical accuracy of accounts
One of the main objects of scientific methods of accounting is to make sure that accounts have been kept in a proper way. The arithmetical accuracy of accounts kept in the ledger can be assured by preparing a trial balance.
Agreement of a trial balance is the proof of the arithmetical accuracy of accounts. The advantage in taking loan’s Due to insufficiency of capital, borrowing capital from outsiders is felt necessary to run a business.
Loan givers are not willing to give a loan without knowing the financial position of a business. Financial statement of a business concern reflects the solvency or loan repayment capability of that concern.
11. Acceptability to others
Banks or financial institutions are interested to know the accurate financial position of a business concern for sanctioning loans.
On the other hand, government or other authorities may also ask about the financial position of a business concern for various reasons.
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The basic rules of recording transactions in account books
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