Fundamental Accounting Principles 22nd Edition Answer Key Chapter 3
Attain Simple Solutions Online with Fundamental Accounting Principles 22nd Edition Answer Key Chapter 3
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Before diving into the fundamental principles of accounts, it is important to define the domain of accounting. Knowledge which is essentially concerned with techniques of recording data, conducting audits, reporting collecting information and using such facts to improve conditions of a company can be termed the crux of accounting.
Fundamental principles are those techniques used in this discipline to apply the tricks of accounts in order to reap successful results. Students must remember that not all principles are applied at the same time, nor are the end-results same every time they are applied in different situations.
Essential principles of accounts
Principles of accounting are many but broadly three main points can be identified. These points are stated in terms of the account – real, personal or nominal which is in question. These three points are illustrated below:
- Debit Receiver, Credit Giver
As per solutions provided in Fundamental accounting principles 22nd edition answer key chapter 3 this principle is used in personal accounts. In such a scenario, each time an investment is made in an organization the investment is an inflow. The amount has to be credited or recorded by the organization. In reverse also the method is similar, when an investment is made by a company it must be recorded too in the form of debit.
- Debit what comes in, Credit what goes out
Companies involved in businesses related to land, building and machines usually opt for this technique. Real accounts are where one notices this principle being applied. A default debit balance is observed here. Under such a principle each time debit comes in, the amount is sent to the existing account balance. Each time a tangible asset is invested in the form of credit, balance reduces.
- Debit expenses and losses, Credit incomes and gains
In this method the accounts are nominal in nature. Here company capital in totality is considered a liability, thus it contains a credit balance which is default. Crediting incomes and gains will lead to a hike of capital and debiting expenses or losses cause capital to fall. With Fundamental accounting principles 22nd edition answer key chapter 3 such concepts can be handled. In such a way balance can be maintained within the organization and functioning can be smooth.
These principles are very general, in a micro-form, other ideas such as accrual, consistency, full disclosure and other principles can be applied by an organization.
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