Key Concepts in Accounting: A Comprehensive Review

Posted on Feb 23, 2025 in Mathematics

Accounting Principles and Practices

Conceptual Framework

Accounting Principles Part I:

  1. Business Principle (Going Concern): The company operates for an unlimited time.
  2. Accrual Principle: Revenue and expenses are recognized when they are earned or incurred, regardless of when cash changes hands.
  3. Consistency Principle: Maintain consistent evaluation criteria over time.
  4. Principle of Conservatism (Prudence): Recognize potential losses when they are probable, but only recognize gains when they are realized.
  5. Principle of Non-Compensation: Do not offset assets against liabilities or income against expenses.
  6. Principle of Materiality: Apply accounting principles based on the significance of the item.

Rules of Registration and Valuation

The PGC (General Accounting Plan) and PGC (SMEs) in the second part develop accounting policies and other rules, with the first part containing the criteria and rules to apply.

Annual Accounts

  • Balance Sheet
  • Profit and Loss Account (Income Statement)
  • Notes to the Financial Statements

These are prepared at intervals of twelve months by the employer and are expressed in euros.

Chart of Accounts

Accounts are grouped and arranged with their codes in a quarter of the PGC and PGC (SMEs), arranged in 7 groups from 1 to 7:

  • Groups: 1 digit
  • Subgroups: 2 digits
  • Accounts: 3 digits
  • Sub-accounts: 4 or more digits

Groups and Definitions

  • Group 1: Core Funding: Own resources and external funding, including reserves.
  • Group 2: Non-Current Assets: Assets intended to be used on a continuing basis, including all fixed assets.

Inventory Management

In the continuous movement of merchandise (buying and selling), accounting needs to track the quantity and value of goods in the warehouse at the end of the year. The initial inventory of an exercise is always the final inventory of the previous exercise. To regularize the market inventory at the end of the economic exercise, use the “VEM s account assistant,” which can only balance debtor or creditor accounts.

  1. To remove initial inventory: (610) VEM to MRC at (301)
  2. To add final inventory: (301) AA MRC VEM (610)

Value Added Tax (VAT)

VAT is an indirect tax on consumption, levied on:

  • Delivery of goods and services performed by businesses or professionals.
  • Intra-community acquisitions of goods.
  • Importation of goods.

VAT Settlement (Likidación)

Result: VAT collected (+) minus VAT deductible (-) = to investigate or to refund (if a refund applies).

  • Settlement is done quarterly, with a term of 2 days after the end of the quarter.
  • Under the sub-account (-) for VAT debtor (4700)
  • Under the sub-account (+) for VAT creditor (4750)

VAT deductible = VAT supported (soxtado) on the acquisition of goods and services with a deductible nature.

VAT collected = VAT passed on (rprcutido) on the sale or provision of services.