ABSTRACT
This chapter discusses the accounting cycle or bookkeeping cycle. It introduces the basic assumptions on which the accounting cycle is based and the accounting equation. The accounting assumptions are the entity or business entity assumption, the accrual basis of accounting assumption, the going concern or continuity assumption and the measurement assumption. One of the basic assumptions in accounting is that the firm is seen as an entity which assumes an independent position in relation to its environment. The accounting equation shows the relationship of assets, liabilities and equity. The balance sheet or statement of financial position lists the entity’s assets, liabilities and owner’s equity as of a specific date, usually the end of a month or a year. The balance sheet is like a snapshot of the entity. Bookkeeping is based on financial transactions, not on opinions and desires. A financial transaction is any event that affects the financial position of the business and can be measured reliably.
