Learning Diary

LEARNING DIARY

The second lecture focuses mainly on the type of information that are registered in accounting and gives insights on financial statements and the concepts on its structure as well as processes involved in moving from dual entries to financial statements.

In as much, that processes involved in financial statement is the recording of financial activities of a business, its main objective can be expressed as the provision of information about financial position, performance and changes in financial position of an organization, which is regarded useful for decision-making. The lecture also describes the basic elements involved in the recording of financial statements. These include:

* Accrual basis: describes the recording of financial transactions in accounts when revenues are earned and expenses as they are incurred. This basis is referred to as the main rule.

* Cash basis: refers to the recording of financial transactions in accounts when cash is received or paid.

The process of recording financial information is accompanied with two entry rules. These rules can also be described as the double entry accounting system, which records the related pairs of financial transactions for assets, liabilities, income and expenses. These rules states that:

* The increase of cash is written down into the debit side of the cash account and the decrease of money is written down into the credit side of the cash account.

* Each entry will be written into at least two different accounts so that the amount of entry in the debit side is equivalent to the entries to the credit side.

These rules should be considered as an important factor to follow when recording a financial transaction in order to estimate the value derived from the given process. With this rules comes the income statement and the balance sheet. the income statement also known as the profit and loss account, indicates how revenue can be transformed into a net income which is the result accomplished after all revenue and expenses have been accounted for while on the other hand, the balance sheet is described as a summary of an organization's assets, equity and liabilities at a specific point of time.

There is also a given description on the usage of these concepts in recording the financial statement and how both the debit and credit can be used in an income statement and balance sheet accounts to analyze assets, liabilities and equity. With the use of both the rules and concepts and its understanding, organizations can be able to improve on its financial activities by keeping track of its daily processes and as well, making proper use of its incomes derived from its revenues.