Book contents
- Frontmatter
- Contents
- Preface
- 1 Basic concepts
- 2 The accounting framework
- 3 The accounting system: elements of double entry accounting
- 4 The accounting system: revenues and expenses
- 5 The accounting system: accruals, prepayments and depreciation
- 6 The interpretation of accounts
- 7 Accounting for price changes
- 8 The collection and processing of accounting data
- 9 Some extensions and suggestions for further reading
- Solutions to exercises
- Notes
- Index
4 - The accounting system: revenues and expenses
Published online by Cambridge University Press: 01 June 2011
- Frontmatter
- Contents
- Preface
- 1 Basic concepts
- 2 The accounting framework
- 3 The accounting system: elements of double entry accounting
- 4 The accounting system: revenues and expenses
- 5 The accounting system: accruals, prepayments and depreciation
- 6 The interpretation of accounts
- 7 Accounting for price changes
- 8 The collection and processing of accounting data
- 9 Some extensions and suggestions for further reading
- Solutions to exercises
- Notes
- Index
Summary
INTRODUCTION
The primary purpose of this chapter is, as indicated in the final section of the previous chapter, to introduce the method of preparing a detailed profit and loss account within the double entry system, by the use of revenue and expense accounts. There are, however, three subsidiary objectives. Firstly, the appropriation or capital account, which links profit, P, to change in net worth, ΔN, and which was introduced in chapter 2, will be illustrated. Secondly, the numerical illustration will relate to a manufacturer (R. T. Zan) rather than a retailer (R. E. Taylor), and this will give us the opportunity of examining how stocks and work-in-progress are recorded. Thirdly, we shall start to use the debit (dr.) and credit (cr.) notation, rather than the elementary ‘+’ and ‘-’ used earlier, and balances will now be carried down by the double entry ‘c/d, b/d’ method. We shall, however, continue to use the tabular double entry system, because its compactness has particular advantages in displaying the inter-relationships between accounts which are of particular importance in the illustrations presented here. In chapter 5, we shall resort to the T account format.
A BASIC ILLUSTRATION
Our illustration will begin by presenting accounts which have a single profit and loss account, as in chapter 3, rather than separate revenue and expense accounts.
- Type
- Chapter
- Information
- The Elements of AccountingAn Introduction, pp. 42 - 58Publisher: Cambridge University PressPrint publication year: 1992