BASIC ACCOUNTING PRINCIPLES PT. IITOM CARLSON

• Welcome back for the second edition of Basic Accounting Principles

• I’m excited to see you return to learn more about accounting

• Being a CPA and professional accountant is a lot of fun and there is always room for improvement or refreshing what you've already learned

• Enjoy and hopefully you can take something educational away from this

GainsGains are basically a net amount related to transactions that are not considered part of the company's main operations

If a company were to somehow become involved in a business that is not a normal or day-to-day type operation, this would be considered a gain

The company will also have to report on any financial improvements from the gain

ExpensesWhen you think about expenses you think about costs

These costs are used up by the company in helping to perform its main and targeted operations

The matching principle (which I mentioned in the previous post) requires that expenses be reported on the income statement when the related sales are made or when the costs are used up

Not in the period or time when they are paid

LossesLosses are essentially a net amount related to transactions that are not considered part of the company's main operating activities

If a company sells an item they must remove that item from its accounting records and the selling price of the item will not be included in the company’s sales or revenues

ConsistencyAccountants are highly expected to be consistent in their work as they are handling money from multiple sources

They must be consistent when applying accounting principles, procedures, and practices

A good example of consistency is how a company views their cost flow assumption in terms of FIFO and LIFO

If a company regularly uses FIFO is would be a huge mistake to one day switch to a LIFO policy unless it was clearly brought up to clients and was generally accepted

ComparabilityIn accounting and general business, investors, lenders, and any other person using financial statements have come to expect that financial statements of one company can be compared to the financial statements of another company within the same industry

The businesses use generally accepted accounting principles to provide comparability between the financial statements of different companies

This helps everyone in the financial pipeline or who is concerned with the financials for one or many companies involved in the same industry to easily navigate through information and understand everything as easy as possible