Accounting For Beginners: Key Terms You Must Know!

1. Introduction to the class: Hi, everyone. Have you ever felt like accounting is too complex, filled with confusing jargon? Well, not anymore. Welcome to accounting for beginners. Key terms you must know. Whether you're a student, a business owner or just curious about accounting, this class will give you a clear, simple and engaging introduction to the language of accounting. This class is for everyone. My courses have reached learners all over the world, helping them gain confidence in accounting. This course will do the same for you. This class isn't just another accounting class. It's your secret weapon to mastering the language of accounting. We would cover key terms such as assets, liabilities, incomes and expenses, capital and revenue expenditure, capital and drawings. After the class, you'll be able to understand accounting without the jargon. It's absolutely perfect for beginners. You'll gain the confidence you need to excel in accounting, and this class will be quick and smooth. So if you're ready to break through the confusion and start speaking the language of accounting with confidence, let's get started. Thank you very much. 2. Assets in Accounting: Definition & Examples: Hi everyone. In this video, we would be covering the first important definition which is called asset. So let's dig right in what is an asset. Now, the first thing that I would be doing is that I would break down the definition into small, small points. All right? An asset refers to the resources an entity owns. Now, I would pause here for a moment. I wrote entity. The word entity is of crucial importance. I did not write owner. I wrote entity. Accounting is all about the business. We do not care about the owner. We only care about the business. Okay? Now, this is a very important accounting concept, which is called business entity. We would cover that later on. So resources and entity owns resources that are owed to the entity, and the final point is the most important. Whatever resources you own or owed to you, they must generate economic benefits. Now, economic benefits refers to money. Whatever you own, it must generate money for the business. It must generate revenue for the business. Okay? Now, a little more, we would dig more deeper into each point. The first point was resources and entity owns. Now, this is for you. I want you to think about all the catchy and attractive stuff you own. It could be an iPhone. I'm sure you have a smartphone. It could be an Xbox or PS five or whatever gaming console you own, or it could be a watch. You own all these stuff. So these can be your assets. Moving on, let's look at a more professional example relating to the ownership of an asset. Now, let's assume there are two vehicles that are currently being used in my business. Now, you can see the left vehicle is a delivery truck, and the right vehicle is a jeep. So the delivery truck is used for the delivery of essential supplies, which is of key importance. The Jeep, however, it's not mine. It's owned by John, even though it's in my garage. And even if I'm doing business with that Jeep, this is never my asset. Why? Because it's owned by John. I don't have the ownership. My business does not have the ownership. So the first point of an asset is that you must own the asset. Moving on. The second point we resources owed to an entity. Now, let's suppose your birthday is next week, happy birthday. Now, your dad promised to give you $1,000 as a present. What a wonderful dad. Now, in other words, your dad owes you $100. He owes you. Now, this is what it means resources owed to an entity, right? So that's your asset. Next, I wrote generates economic benefits. Now, let's move on to the first slide where we spoke about whatever you own, the phone, the Xbox, the watch. Now, a very important question. Fine. You own all this stuff. You have a phone, you have a gaming console. You have a watch, you have shoes. You have all fancy stuff. You have earphones, apods. But the most important question is, do these items generate money for you? Are you generating money from these items? I'm sure you're not. Are you doing business with these items? If the answer is no to these questions, then these are not your assets. Economic benefits refers to money, income, revenue. Whatever you own, you must do a business with that. You must generate money. Economic benefits refers to money. Now, the final checklist, what you have to always remember resources and entity owns, number one, very important. Or it could be resources that are owed to entity, and the final and most important point is what? Generates economic benefits. Finally, you have to know that there are two types of acids. There's a non current acid and a current acid. We would be covering these in the next video, so I'll see you in the next video. Thank you so much. 3. Non-Current Assets Explained: Welcome back, everyone. In this video, we would be covering non current assets. A very, very important concept that we would come across various topics in lable accounting. Non current assets are also known as long term assets. They're also known as fixed assets. Let's look at the definition first. These are assets that are held in the business for a very long time, generally more than a year and generate economic benefits for a long time as well. The intention is to hold the asset. We would not resell it. Now, these assets are generally quite expensive, and the intention is just to hold it in the business. We would use it in the business. We would generate benefits out of it. We would not resell it. In other words, it's fixed in the business. This is why they are also known as fixed assets. Now, let's look at the most common non current assets. What are they used for, and what are the expected economic benefits? Now, a motor vehicle is a very common non current asset, and they are used for the transportation of goods, providing delivery services, commutation of employees. Now, all these could save tremendous amount of costs. So these are the economic benefits of a motor vehicle. Land is another, very, very important non current asset. It could be used for building structures, or it could simply be leased out or rented out, and the business could be generating for the income. Furniture and fittings is also a very important non current asset. Imagine going to a restaurant or going to a business. There are no tables, there no chairs. There's nothing. You just run away, isn't it? So these enhance the reputation of the business in front of the clients, which leads to an efficient working environment. Lastly, machinery a very, very important non current asset. So machinery could lead to production efficiency. It could lead to higher output. It could lead to economies of scale, reduced labor costs, and much more. Now, I want you to note one thing. All these non current assets have a very important role in the business. Right? They have a crucial importance in the business. All these benefits that you can see, these are the economic benefits that the non current assets generate. And these economic benefits would be for a very long time. They would be earned over the period of many, many years. This is why they're known as long term assets. See you in the next video in which we would be covering current assets. Thank you very much. 4. Current Assets Explained: Everyone. Welcome back to our next video. In this video, we would be talking about current assets. Now, current assets are also known as short term assets. It's the complete opposite of a non current assets. They were known as long term assets. So let's dig right into the definition. It's very important, so I want you all to focus. These are assets that are expected to generate economic benefits up to a year only. A year means 12 months. They would never exceed 12 months. Now, when I talk about economic benefits in current assets, I refer to cash. This is the only economic benefit that current assets generate. It's expected that these assets would bring cash into the business within one year. They are never held for more than a year. Now, for better understanding, let's have a look at the most common examples of current assets that are very, very important. Inventory. Inventory is also known as stock. Now, I want you all to picturize a business that deals in the buying and selling of fruits. Well, let me make it easy for you. This is what it looks like. Now, you can see all sort of fruits over here. Now, my question to you is, why do you think the business is buying all the fruits? Because they like it because for fun, for hobby? No. The reason why you see all the fruits over there is to resell it. If you remember, when I explained the definition of non current asset, I said the intention is to hold, not to resell. Now, over here, the intention is to resell, never, ever to hold. Why do we buy all these items? What's the intention in our mind that we want to resell it one day? So this is inventory. Inventory also refers to purchases, items we buy for reselling. Next receivable. Very, very important. We will study an entire chapter on this bad debts, but it's very, very important for us to have understanding about receivable. So let me give you guys a small scenario. Now, the owner of the business is Emily, as you can see, on the screen. Now, whatever she's selling, that's irrelevant for now. Now, she sold goods worth $100 to John. But the problem is, John said that he is Emily's loyal customer buying goods for years. So he requested Emily. Can I take the product now and pay you next week? Now, Emily knows that John is a loyal customer. She also trusts John. She was a bit reluctant. She said, Um, okay. Now, let's understand the entire story. What happened? John owes Emily $100. So John is the credit customer. Credit refers to selling something and collecting the amount later. So John is the credit customer. Emily has to receive $100 from John. Now, the word receive comes from receivable. Since Emily has to receive $100 from John, John is Emily's receivable. Receivable is your credit customer who owes you money. And if you remember the definition of current of assets, the second point, I told you, resources owed to the entity. In this case, John owes $100 to Emily, the owner of the entity. So this is what receivable is. There are some other small examples of current assets. The cash you have in your hand. That's a very important current assets. The cash you have at the bank, that's also a very important current asset. Prepaid expenses, we will cover this later on in the accruals and prepayments chapter and accrued income. We'll cover this later as well. So, guys, that's it for current assets. I'll see you in the next video. Have a good time. Bye bye. 5. Liabilities in Accounting: Definition, Types & Examples: Everyone. Welcome back to our next video. In this video, we would be covering a crucial concept which is called liability. So let's get started. Liabilities are your debts, financial obligations or burdens which are to be repaid by the business. Now, these are not good things. These are burdens, obligations which have to be repaid. Now remember, just like assets, there were two types, non current and current. Similarly, even in liabilities, there are two types. Non current liability and current liability. The concept is very similar to the non current and current assets, like in non current assets, they were assets held for more than a year, if you remember, same goes for the liabilities. So non current liabilities are those debts which have to be repaid after a very long time, generally more than a year. Now, most commonly, there are two examples of non current liabilities. Number one, long term loan. Now, long term loan is a loan which is generally paid over an extended period of time. Minimum after three years, five years, ten years, and it can even stretch up to 20 years. The amount is also massive. It's used for long term purposes, such as buying non current assets or for investments. There's another very common example, which is called debentures. Now, debentures, we would cover this later in the company accounts chapter, so I don't want to confuse you all. Now let's move on to current liabilities. Now, before I move on to current liabilities, I want you to recall the definition of a current asset. Now, current assets, if you remember, it's expected that the economic benefits would flow in the business. They would generate economic inflows. So now, these are debts. Obviously, current liability these are your debts. So these would create outflows. It's expected to create outflows. These are debts or financial obligations which have to be paid within one year, same as current assets within one year. So and the current liabilities have to be paid within one year. The difference is, these are outflows, current assets are inflows. In other words, the economic benefits cash is expected to go out of the business within one year. Now, there are some very common examples. Some are technical. We would cover them in detail, and some we'll cover later on. There's payable bank overdraft, accrued expenses we would cover later on, and prepaid income would also cover later on in the accrued and prepayments chapter. So let's understand what payable is. Now, again, I will give you a short scenario. The person you see on the screen is John. He's the owner of the business. Now, John bought goods with $100 from Emily. So Emily is the supplier, and John is the business, and John bought goods on credit. Now, I hope you understand the word credit. I explained this in the current asset chapter. So now, let's assume that Emily is John's supplier for years. So based on that relationship, John made a request. Can I take the product now and paint next week? Now Emily acknowledges the fact that John is a loyal customer. She says, okay, I don't have a problem. Now, let's understand the scenario from John's perspective. Now, John owes Emily $100. All right? John owes Emily how much? $100. So John is Emily's credit customer. And now John has an obligation to pay $100 to Emily. All right? Obligation to pay. The word pay comes from payable. In other words, Emily is John's payable. So Emily is the liability of John. He has a debt of $100, right? So this is what payable is. Payable is your credit supplier to whom you owe money. Now, I want you guys to understand one thing. This general rule would always apply. One party would always be the payable. Now, if I talk of John's perspective, Pause the video for a second and tell me what is Emily? Is she a payable or a receivable? Right, from John's perspective, Emily is the payable. Why? Because John has to pay Emily. From Emily's perspective, who is John? Emily sold goods to John. So Emily has to receive the money from John. So John is Emily's receivable. So always remember one party is the receivable, the other party is the payable. So this is the concept of payable. Now, let's move on to bank overdraft. This is also very important. Now, let's assume John has $10,000 in his bank account. Well, sounds pretty good. He can go for holiday. Anyways, the problem is he's paying a crucial expense, a very crucial expense of $11,000. He only has $10,000 in his bank account. Would he be able to pay the expense? Yes or no. Yes, he can pay the expense. Now, he has 10,000 in his bank account. The bank would allow him that, Okay, fine, we will pay the extra expense. You can pay us later. So he paid $11,000. Now his bank account would appear as $1,000 negative. Now, in accounting, whenever we show a parenthesis, it means it's a negative balance. Always remember that parenthesis means a negative balance. So this is a bank overdraft when you withdraw an amount more than your limit in your bank account. So John overdre sorry, John overdrewt hundred dollars from his account, and now he has to repay it to the bank. So a bank overdraft is a temporary loan that allows bank customers to continue paying bills overdrawing money even after their accounts are empty. So this $1,000 is another debt that has to be repaid by John. So this is a liability. That's it for today's class. In the next video, we will be covering some other crucial concepts. See you tomorrow. Thank you very much. 6. What Are Expenses? A Guide to Business Costs & Accounting: Right. Hi, everyone. Welcome back to our next lesson in which we would be covering the concept of expenses. Pretty straightforward, but it can get a bit tricky at times, so let's cover this concept. Now, expenses are all the costs incurred by your business in order to generate income. When I refer to income, I mean revenue, which we would come in the next video. What's the purpose to generate income. Now, why does a business pay all these bills, electricity, gas, salaries? Why do they pay all the bills? Because they like it to have fun? No, they pay the expenses because of only one purpose which is to generate income. Now, I'll give you an example about a school, okay? This is a school. Now, I want you to pictuze visualize all the possible expenses a school generates. For instance, the salaries to the teachers, now, if they don't pay the salaries to the teachers, the teachers would resign, ultimately leave. With no teachers, how can they generate students? How could they generate income, in other words? If they don't pay the rent of the building, they will be kicked out from this building. And then how would they run the school? How would they generate income? If they don't pay the electricity bills, the government would cut off the electricity supply, and who would send the students where there's no electricity, no fans, no lights, nothing. Okay? So these bills are paid with only one purpose. That is to generate income. So this is what expenses are, the costs incurred by a business in order to generate income. Thank you very much. In the next video, we would be covering income. 7. Incomes in Accounting: Operating, Non-Operating & Other Sources: Hi, everyone. Welcome back to our next video. In this video, we would be talking about incomes, a very important and straightforward concept. So let's dig right in. Incomes refer to the earnings of a business. Now, this earning can be generated by either selling goods or rendering services. It all depends on the type of your business. Now, let's look at the example of a school. What's the main source of income of a school? Who's the video. School fees, right? Let's talk about a farmers' market. What's the main source of income generated from a farmers market? Selling of vegetables and fruits. Let's talk about an ice cream parlor. Their main source of income is the selling of ice cream. So these are all the earnings generated by either providing services like the school or selling goods like the farmers' market and the ice cream parlor. Moving on, there are two types of income. There's your main source of income and your other income, which is also known as secondary income. So the main income is the primary source of revenue, which directly relates to the core operations of activities. Okay? Like in this example, what I gave you, the core source of activities of the school is collecting school fees. The core source of activity for the farmers' market is selling vegetables. The core source of activity of the ice cream parlor is the selling of ice cream. So this is the main source of income, okay? Like a car manufacturer, the selling of his cars is the main source of income. The other income, however, this refers to earnings not directly related to the core business activities. If I have a school, my main source of income would be what? Collecting school fees, right? But what if the canteen, the tuck shops, they give me a profit share. The stationary shop, they pay me rent. I sold some extra chairs and tables. I earned income. So any income earned that's beyond your core or principal activities, that's called other income. Okay? For instance, selling of assets, salary or commission received. Now I'm going to give you a very, very important tip, a very, very important tip. When ever the word received is mentioned, that refers to other income. Remember, you'll come across so many questions and transactions with the word received. That refers to your other income. For instance, commission received, salary received, discount received, bonus received, and XYZ received. That's always going to be your other income. So that's income. In the next video, we will talk about drawings. See you in the next video. Thank you so much. 8. Accounting for Drawings: Recording & Adjusting Owner’s Withdrawals: Hi everyone. Welcome back to the next video. In this video, we will discuss the concept of drawings. Now, what is drawings? Let's have a look. Drawings refers to anything withdrawn or taken out from the business for personal use. Remember, not business use for personal use. Alright? It could be money. It could be inventory. It could be non felon asset san. Okay? Anything withdrawn. You had a personal use to do. You withdrew items from the business. That's your drawings. For instance, Emily, the owner of XYZ Enterprises, she withdrew $1,000 from the business for an emergency at her residence. Okay? Another example, John, the owner of IkiaFurnitues. He took a bed set for his house. Okay? Anything withdrawn from the business for the personal use, that's drawings. We don't really care about the nature of the activity. Why is the owner withdrawing the items? We only care if it's personal use, fine, that's drawings, okay? However, I want you to remember something very, very important. If anything is withdrawn by the business for office use, that's not draws, okay? Like, if I change the example slightly, he took a been set for another branch. Okay. If John is the owner of Akira furnishes, he took a bed set for another branch, then that's not drawings. Why? Because this is not personal use. This is office use, all right? Okay, so that's it for this class. I'll see you in the next lesson in which we'll be discussing the concept of capital. Thank you so much. 9. Understanding Capital: The Foundation of Business Finance: Everyone. Welcome back to the next video in which we would be discussing the concept of capital. Capital is also known as equity or owner's equity. Now, let's dig right in and try to understand what this refers to. So capital represents the interest and stake of the owner in the business. Now what is stake? Beef tenderloin, Rube, medium ray, medium well, I'm not talking about beef or that stake. So stake of the owner in the business means that the owner has a share in the well being or in the misery of the business. He owns something in the business, okay? He has something to lose or something to gain from the business. This is what stake refers to. He would be affected by the business actions. If the business does well, his equity goes up. If the business goes down, his interest, his stake, his ownership goes down as well. Now, why does the owner have a stake in the business? Because it represents the amount of resources the owner has invested into the business. Whenever a business commences operations, where does that money come from? It comes from the owner's investments. So that refers to capital. Investment can be in the form of money, assets, or any other resources, not just money. For instance, let's say me and you, my student, we started a business, okay? You invested money. I had no cash, but I had some properties, so I gave the properties to the business. It could be anything. Moving on. How does capital represent the owners stake? This is a very important confusion that students don't understand what does owners stake mean. So I've prepared some points. Let's go through them. Ownership stake, what I just spoke about. The owner has a claim on the company's assets and earnings. Why? Because he invested his money. The higher the investment, the higher the claim he has on the company's assets. Then alignment of interests. Remember, as the owner, you're investing your capital in the business. So whatever decisions that you would make, they would always be aligned with the interests of the business, because you both are on the same page. Risk and reward. By investing capital, the owner is taking a risk. It's a risk, right? The business can go down. It can do well. There is an expectation of future rewards. The success of the business directly impacts the value of the owner's capital. This is a crucial point. Remember, equity doesn't stay fixed. Equity can go up, equity can go down. If the company does well, the company is profitable, profits are blooming, the equity goes up. If the company is making losses, the equity goes down. Remember, it's not always fixed. We would cover this in detail in the near future. Control over affairs. When you invest your money in the business, you will have control over the business, over the strategic and tactical and crucial decision making in the business. So this is why I said that capital represents the owner's stake and interest in the business. These four points are the stake and interests of the owner in the business. That's it with this video. I'll see you in the next video. Have a good day. Bye bye. 10. Understanding Capital Expenditure: Definition & Examples: Welcome back my genius accountants. In this video, you would be beginning a very, very important chapter, which is called capital and revenue expenditure. In this video, we would be covering capital expenditure. Now, you all know my technique of teaching. Whenever I teach a definition, I break down the points into smaller, smaller sub points. So I've broken down the definition into four different points. Now, these are not just points. These can be used as a checklist as well. To identify an expense, whether it's capital or revenue, you have to follow this checklist. So let's dig right in. Point number one, capital expenditures are associated with the purchase of non current assets. I'm sure all my genius accountants know what are non current assets now. I hope so. For example, if a business buys a delivery van, this is capital expenditure. They're buying a non current asset. If they buy a building, that's capital expenditure. If they buy machinery, that's capital expenditure. If they buy inventory, that's not capital expenditure. I wrote, associated with the purchase of non current assets only, inventory is your current asset. So this is not a capital expenditure. Moving on to point number two. That's very, very interesting. So associated with bringing the non current assets to the desired location of the business and putting them into operational use. Now, this definition is covered under the accounting standard called IAS 16, property plant and equipment. Okay? So it says, bringing the non current asset to the location of the business and putting it into operational use, installing it, running it, okay? So let's have a look at an example. Let's say you own a bookstore in Central London, UK. Now you are in dire need of a generator. So you decided to source it from China, okay? And the generator itself costs $1,000. That's the price of the generator. Now my question is, the distance from China to UK is humongous. Will this generator cost me $1,000? No. What does it say? Bringing the asset to the desired location, all costs involved in bringing the generator from China to UK and installing it. All that is your capital expenditure. All that becomes part of the cost of the generator. Okay? For example, the list price before discount off the generator was $100. Okay? Trade discount offered to me was 10%. So if I multiply 1,000 by 90%. Okay? Or, multiply 100 by 10%, subtract the answer from 1,000, you'll get $900. So my net price is 900. A very important cost is the A freight to London Heathrow Airport. This is very important. $600 I have to pay. The transit fees, $100 I have to pay, nonrefundable taxes, very, very important and crucial. I have to pay the UK government. Now, once the generator lands at London Heathrow Airport, I have to transport it to my premises in Central London. So that will cost me $50. Now, all this from the list price right till the local transport. This is bringing the asset to the location. But if you remember, I said, it's not just bringing it to the location, it's putting it into operational use. So I invited genius and I installed the generator for $100. So add everything up. Add everything up. 900, the net price plus 600 Aright, 100 transit fee, the taxes, the local transport, the installation, you'll get one $950. This is the total capital expenditure. When I mean capital expenditure, I mean the cost of the generator. Capital expenditures go to non current assets. So when I debit the generator in my books, I won't debit it with 1,000, I would debit 1,950, okay? So this is my capital expenditure. There are so many things. It's not just the price of the generator, bringing it to my premises and installing it, okay? Moving on to point number three, any expenses which increase the life of the non current assets increase its efficiency and capacity, very, very important. So let's have a look at an example. Let's say you own this beautiful Ferrari. You decide to paint the car. Now think for a moment. Does painting your car increase the life of the asset? Does it increase the efficiency? Does it increase the capacity? No, no, no, no. It only gives a better appearance. It has nothing to do with the life or efficiency or capacity of the assets. So this is not a capital expense. If you change the tires, does this improve the life? No, it does not. Okay? Now, tires, if you change the ties of the car, it won't increase the life of the acid. It won't increase the efficiency because every car has limitations. When you bought the car, you were told that this car can travel at this speed at this point in time, okay? So changing the tires does nothing to the overall capacity or overall performance of the car. So this is not a capital expenditure. However, if you do a engine overhaul, you improve the engine. This would increase the horsepower. So definitely, this would increase the efficiency. So this is a capital expenditure. If you convert your car to a hybrid model, your fuel economy would get better. So this improves the efficiency. So this is a capital expense. If you install equipment in your car, which could increase the capacity. For example, if you have a motorbike, you installed a compartment at the back seat where you could bring more inventory. So that increases the capacity. That's a capital expenditure. Some people, they add a cabin behind the car used for holding inventory. That also increases the capacity. So that's your capital expenditure. Moving on to point number four, any expenses of a one off nature, that's your capital expense. Now, one off means something that happens once in a while, something that's very rare, something that's infrequent, okay? Because these capital expenses are so expensive, you can't do them all the time. You will do them once in a while. For example, if you do a major renovation, let's say you own a restaurant in a busy area, you change the entire seating area. You made the kitchen to open kitchen where the customers could have a look at what's being made, okay? You decided to add television, so the customers don't get bored. You decided to add a gym. So while the customers are waiting, they can do the time before the crime. So all these are once in a while. It's too expensive. So this is your capital expenditure. Number two, purchase of intangible assets. When you move on to your accounting studies, you'll study an accounting standard called IAS 38, intangible assets. So, let's say you own a business. Now, it's very important to make sure that someone else does not steal your name, so you will buy a legal copyright. You would buy patents. These are all intangible assets. They don't have a physical existence, yet they are something very, very crucial for your assets. So these are also capital expenditures. Number three, legal settlements. If you're facing a court case with someone, you had to pay legal charges. That's very rare. You won't have court cases every day, right? So all one off expenses are your capital expenditures, okay? Final and most important point before I conclude the class. Remember, capital expenditures are only recorded in the balance sheet. They are not recorded in the income statement. They go in the non current asset category of the balance sheet. Always remember that. From now on, if I say that a balance has been capitalized, it means it's a capital expenditure recorded in the non current assets section. It goes nowhere else, okay? I hope you understand this video. In the next video, we would have a look at revenue expenditure. Thank you very much. Have a wonderful. 11. What is Revenue Expenditure?: Welcome back my genius. In this video, we would be covering revenue expenditure. Now, I hope you understood my previous video. In the previous video, we covered capital expenditure, so let's dig right in. This is just the vice versa, the opposite, the reverse of capital expenditure. If you remember the four points I taught you, ok? What were the four points pause the video and think point number one, associated with the purchase of non current assets. Point number two, which increased the life capacity and efficiency of the non current asset. Point number three, bringing the asset to the location of the business and installing it. Point number four, one of nature expenses. Reverse all those points, then you will come to the revenue expenditure. So let's move on to the first point. Day to day and recurring expenses, they happen frequently. They happen countless of times during the ongoing operations of a business. For example, rent, rent is paid monthly, electricity paid monthly, salaries could be paid monthly or paid like quarterly, gas paid monthly, advertising, paid monthly, depreciation annually. Okay? So these are all your revenue expenditures. They happen frequently, okay? As your business is operating, doing operations, you incur expenses. So all those operating expenses are your revenue expenditures. Point number two, they do not improve or extend the life or capacity of non current assets. They are simply used for maintaining ongoing operations. For example, you own a car. In order to run the car, you have to add fuel. So this is an ongoing car used for ongoing operations. Sorry, ongoing expense used for ongoing operations. So this is revenue expenditure. Maintenance, very important. Otherwise, how would you run your car smoothly? Washing your car. So these are all expenses used for maintaining ongoing operations. These are revenue expenditures, okay? Moving on. They are short term. They're not long term like capital expenditures, okay? So they are normally incurred and consumed within a single accounting period. For example, you took services of your employees, then you paid them after the period. You use the office space, you paid rent for that. You consumed the electricity, so you paid electricity bill. You consumed gas, so you paid the government a gas bill. So all these expenditures are incurred and consumed within a single accounting period. In other words, we are incurred to support the day to day operations of a business and don't offer any long term benefits, okay? Beyond the current period. The benefits attained are very short, for example, the skills and services of your employees. That's a very short term aspect, like for a month, then you pay them for the month. So these are not long term benefits. Most important point before I conclude, Revenue expenditures are recorded in the income statement. These are all operating expenses, so they're subtracted from the gross profit before you get the net profit. All right? They don't go in the balance sheet. I hope you understood this video. I'll see you in the next video. Thank you very much. 12. Why is it so important to distinguish between Capital & Revenue Expenditure?: Welcome back my genius accountants. In this video, we're going to cover something very interesting, the importance of distinguishing between capital and revenue expenditures. In other words, why is it important to treat them separately, record them separately? Very, very important. So let's have a look. Number one, the impact on profitability. Now, obviously, if you treat a capital expenditure, for example, you bought a building and you put that in the income statement, your expenses would increase drastically, and as a result, your profit would go down. Understood. On the other hand, if you treat a revenue expenditure as capital expenditure, that would inflate your profit because of the understatement of expenses. So it's very important to treat them separately so your profits are accurate. Second point, accurate forecasting. Okay? Now, if you accurately classify expenditures, this could help you in creating realistic budgets and forecasts for the future. And obviously, accurate forecasting is very, very important for accurate results. Okay? Next point, tax implications. Now, it's pretty obvious that if you treat your capital expenditure as revenue, your expenses would go up, your profit would go down, so your tax would reduce. But I'm not focusing on that. I want you to know one thing in case you didn't know before. Depreciation is a deductible allowance. Now, deductible allowance means that this reduces your tax liability, okay? Now, if a capital expenditure is treated as revenue expenditure, this means that you did not record the non current assets. You did not charge depreciation, so you wouldn't get advantage of this deductible allowance. So no benefit for this deductible allowance. Next point, investment decisions. Now, capital expenditures are extremely expensive. A business wouldn't buy that without planning. They would do extensive research. They would cover techniques such as appraisals, net present value, discounted cash flows, payback period, okay? So if you treat these expenses correctly, then all the projections that you're doing, they would be more fruitful than the other option. I hope you understood this video. See you all in the next video. Thank you very much. 13. Understanding Capital & Revenue Receipts: Welcome back my genius accountants. In this video, we would be covering capital and revenue receipts, not expenditure receipts. Now, understand what the word receipt means. I'm sure it's pretty obvious. Now, receipt means received. These are inflows. Expenditures are outflows. Now, I'm sure you're getting some idea. So let's dig right. So capital receipts and revenue receipts, what's the difference? We would begin with capital receipts. For example, selling non current assets. Whenever you sell a non current asset, the inflow, the cash you receive, that's a capital receipt. Oh, borrowing loans. Now, why do I say borrowing loans, borrowing liabilities? Well, they are inflows as well. When you borrow a loan, you get cash. So it's either a capital receipt or revenue receipt. Now, why is that not a revenue receipt? Because when you borrow a loan, that does not affect your profit. When you borrow a loan, your liabilities increase. They go in the balance sheet, right? That's the first reason. The second reason is loans are borrowed for long term purposes, for example, buying non current assets, investments. So they are capital receipts. Loans increase your existing resources, okay? So right. Moving on to the next point, they are not earned through the regular business operations. They are one off items, okay? They are not earned through the sale of goods. They are earned through selling your assets, okay? They are non recurring and infrequent, as I just mentioned, most important point, they affect the balance sheet. If you sell a non current asset, that decreases your non current assets. If you borrow loans, they increase your liabilities. So capital receipts do not go in your income statement, they go in the balance sheet. Now let's have a look at the revenue receipts. For example, selling of goods. Now, this is your main source of income, something you'll do all the time, okay? The purpose of existence of your business. Why did you open your business? You sell mobile phones. So whenever you sell a mobile phone, that's your revenue receipt, okay? They are earned through the day to day operations of the business. Whenever they sell goods, that's revenue receipts. This is completely frequent. It happens all the time. It's recurring in nature. This affects the income statement. It goes in the income category under sales in the income statement. So my genius accountants, I hope you understood the difference between capital and revenue receipts. I'll see you in the next video. Thank you so much. 14. The Dual Aspect Concept: Hello, and welcome back my Gene's accountants. We are starting a new playlist of accounting concepts. And in this video, we would commence the first accounting concept, which is called the dual aspect concept. And this is the basis for the double entry system. We studied this many, many, many, many, many times, so I won't spend so much time with this concept. So dual means multiple, two, and aspect means perspective or sides. So the dual aspect concept states that every transaction has at least two accounts that would be affected. One would be debited and the other would be credited. This is what the dual aspect concept states that every transaction has two equal and opposite effects on the business accounts. For each debit recorded, there is a corresponding credit of the same amount. We covered this in detail. I would suggest to go watch my dead click video that we would understand. Easily I tote the entire double entry system in steps. Then go and watch that video if you're still having problems in debit and credit. So this ensures that the accounting equation would always remain balanced. Let's look at an example, paid rent of $500 in cash. This is a transaction. Now we can see two accounts being affected. There's rent and cash. The cash is going out. The cash is going out. It's decreasing. It's an outflow. And my rent expense is increasing. So if we follow the dead clique rule, rent would go on the debit side, and cash would go on the credit side because that's decreasing. Okay? So the increase in rent expense signifies the cost that was incurred. The bull of the business increased, the costs increased while the decrease in cash represents the outflow of funds, which is why that went on the credit side. So this was the dual aspect concept. See you in the next video. Thank you very much. 15. The Business Entity Concept: Hello. Welcome back, my genius accountants. In this video, we'll be talking about the second accounting concept, which is called the business entity concept. In this concept, we would draw the line between personal and professional. So let's dig right in. Now, this is XYZ Limited. I always mention the name of this company. And this is Jack, the owner of the business. Now, as you know, a business incurs countless of transactions, for example, paid electricity, paid salaries, sold goods, bought goods, borrowed alone, okay? These are some very common transactions, and there are many, many more. Now, the owner, in his personal life, even he has countless of transactions. All my students watching this video every day, even you guys incur transactions. He had a birthday party for his son, so he paid some expenses over there. He went to the cinema with his family. He paid some bills over there. He bought a house, a very big expense. He bought a new car for his wife. Wow, what a husband and paid his personal income tax. Now my question is, these are countless of transactions. Do all these transactions go in the accounting records? That's my question. Pause the video and think about it. Would we record only the business transactions, jack transactions or both transactions? The answer to the question is very simple. We do not record the personal transactions of the owner. We only record the business transactions. Always remember, okay? This is the business entity concept. Now, the business entity concept is a fundamental principle that states a business and the owner are separate entities. They are separate individuals. Now, because they are separate, we should treat them separate as well. We should completely ignore the transactions of the owner. We only care about the business. Accounting is only about the business, okay? So this means that the financial transactions of the business must be kept separate from the personal transactions of the owner. This helps in accurate financial reporting and decision making. I hope you guys understood the business entity concept. See you in the next video. Thank you very much. 16. The Money Measurement Concept: Hello, and welcome back my genius accountants. In this video, we will be talking about the third accounting concept, which is called the money measurement concept. Which means cash is king. Now let's have a look at this example. XYZ Limited, a business. Now, a business, they incur countless of financial transactions. Whatever we studied so far, you saw so many financial transactions. There's so many financial aspects that affect the success of a business. There's so many transactions like cash sales, cash purchases, paid rent with cash, paid salaries with cash, port assets with cash, paid off assets with cash. These are all financial transactions. But what if I tell you? There are also so many non financial items that could affect the success of a business. For instance, the employee morale, customer satisfaction, skills of employees, leadership qualities. These are all so, so important aspects that cannot be measured in money. They're non monetary but my question to you guys is, have you ever seen all these items in the income statement and balance sheet? Have you ever seen these anywhere in the realm of accounting? No. That's because the money measurement concept states that a business should only record transactions that can be expressed in monetary terms. We'll completely ignore non financial or non monetary items. Accounting is only about the financial aspect of a business. We don't care about the non financial aspect, because that cannot be measured in money. So how can we put them in our accounting records? Okay? In other words, it focuses on quantifiable financial information, excluding all qualitative or non monetary aspects. So, guys, this was the money measurement concept. See you in the next video. Thank you very much. 17. 12e) Materiality Concept: Hello, and welcome back my genius accountants. In this video, we would shed light on another concept, a very important concept, which is called materiality concept. This concept is so, so important in your later accounting studies. If you pursue audit as a career, materiality is so important. So what's materiality, size does matter. Now, let's have a look at a small example I prepared for you, XYZ Limited. Let's say you approached XYZ Limited because you want to invest your money. You want to buy shares or stocks in this company. So if you're investing in a company, you have to see or assess the report card. What is the report card? Their report card is cool financial statements. Now, when he was scrutinizing the financial statements, you noticed their sales were $10 million. Wow. Clown away. Their gross profit was $4 million. Wow. However, you noticed something peculiar. Coke of $1 was also mentioned in the financial statement. Now, I want to ask you a question. Will this coke of $1 will this affect your investment decision? Would you decide to withdraw your investment because of this value because of this transaction? No. So this is what the materiality concept is all about. It's about recording the important transactions only. Okay? In this case, the $1 coke is an extremely irrelevant item. It should be ignored completely. Okay? Now, you guys might be wondering something very important. I told you to record the important transactions only. So you might be wondering, how do we know what is important and what's unimportant? How do we know that? Well, the answer to this question is very simple. Okay? Materiality means that only information that's significant enough to influence the decisions of someone using the financial statements. This is what material means. This is what important is. Okay? If you think there's a value which could significantly affect someone's economic decision, someone's investment decision in the company, that's material. In this case, the $1 coke was irrelevant that wouldn't affect someone's decision to invest in the company. Okay? It's about focusing on the big picture, the items that truly matter, the items that truly impact the company's financial health and performance. Okay? So this is what materiality was. See you in the next video. Thank you very much. 18. The Matching Concept: Hello, my genius accountants. Welcome back to our next video. In this video, we would cover the most complicated accounting concept, which is called the matching concept. Now, students find this concept the most troublesome and the most difficult. So I will try to ease all complexity, so don't worry. Now, if I could summarize the matching concept in one sentence, so that would be that timing is everything. Timing is the most essential component of this concept. Let's dig right in. There are two crucial elements expenses and revenue. So expenses are the costs to run the business, for example, electricity, salaries, gas. Okay, those are old expenses to run the business. Revenues are the incomes earned from the business, from the co activity of the business. Now, there's a relation between both these elements. Expenses are incurred to earn revenue. The only purpose of paying expenses is to earn income. If you own a school, why do you pay your teachers? Because you love them? No, you pay your teachers so that students could come. You can earn school fees or earn income. So expenses are incurred to earn revenue and revenues are earned to pay expenses. All the expenses, how are they managed from the revenues from the income of the business? So expenses and revenues are interrelated. They are interlinked, okay? So it's very, very important to make sure that expenses are recorded in the same period as the revenues they help generate. Okay, that is very, very important. This is the matching concept. The timing of the expenses must match with the income it helps to generate. So let's have a look at some examples I prepared for you all. Number one, commissions, okay? So commissions are given to salespersons. When they generate a sale, they are given a bonus. So that is called a commission. So a company pays its sales staff a commission of 10% on sales. If a salesperson makes a sale worth $10,000 in December, and if the commission is paid in January, that would be recorded in December because the sale was generated in December, so the related expense must also be recorded in December. We don't care when we pay the expense. The expense must match with the income. Okay? This is the matching concept. Next, advertising. Now, a company launches a six month advertising campaign commencing from December 2023, costing $20,000. So December 23, January 24, March 24, April 24, May 24, up to June 2024. These are six months. This is a marketing campaign. Now, even though some of these expenses, they are paid from January, February, March, April. But these expenses would be recorded in December because that is the revenue period, okay? So we have to make sure that whatever expenses are paid, they must relate with the income period, okay, regardless of the fact that whenever the expenses are paid, we don't care about that. We don't mind. What is that when does the income cycle begin? That's where the expense must be recorded. Let's have a look at a more technical example, depreciation. We will study this later on, okay? We'll cover this in detail. So consider a company buys machinery for $100,000 expected to last ten years. So if I calculate the depreciation from the straight line method, we could divide 100,000 by ten. So the machinery will lose value by $10,000 every year. Okay. Now, what the business could do, they could record this entire depreciation expense of $100,000 10,000 times ten, the entire depreciation expense in the current year. But that's not what they're going to do. They will spread the cost over ten years because this machinery would generate revenue for ten years. So the depreciation should be recorded in each year separately. I can't write all of that together in the first year because the machinery will generate revenue in the consecutive years. This is the matching concept. Okay, next example, bad debt. Now, we'll cover this chapter in more detail in our successive chapters after this playlist. So suppose XYZ Limited sold goods on credit to Mark on 1 December 23 with an agreement to pay within 60 days. So the sale was done on first of December and XYZ Limited expected to receive payment on 1 February, okay? On 1 February. However, this person, Mark, he ran away. He fled the country, okay? Mark fled the country and failed to repay us. So this bad debt occurred on 1 February. Now, even though this expense incurred on 1 February, the bad debt would be recorded at the time of the sale, which is 2023. Okay? This is the matching concept that we don't care when expenses are paid. They must be recorded in that period where the income was generated. As I told you at the beginning of this video, that expenses and incomes are interrelated, right? So the closing remarks before I move to the closing remarks, there's one more example of rent. Let's have a look at this example. John paid the rent of December on 2 February. Now, even though he paid this rent on 2 February, this rental expense relates to the period of December 2023. So this rental expense would not be recorded on 2 February, rather, it would be recorded in December 2023, because that's when the income was supposed to be generated. This rent expense was of December, okay? John paid us in February, even though he was supposed to pay us in December. So this rent would be recorded for the month of December. Okay? Expenses and incomes are related. They must be recorded in the same period. Now, the closing remarks, expenses are recorded in the same period as the related revenues, regardless when the payment was actually made. We don't care when the payment was made. What we care about the revenue period. So that's the matching concept, see you in the next video. Thank you very much. 19. The Prudence Concept: Hello, my genius accountants. Welcome back to the next video. In this video, we would be covering another very interesting accounting concept, which is known as the Prudence concept, which means better safe than sorry. Now, in life, what our parents always taught us, our coaches, our mentors, our elder brothers. What were we always taught? That you know what always be positive in life, okay? Always be optimistic in life. But you guys might be very shocked to hear what accounting teaches us. Accounting tells us that always be negative in life. Assume the worst, prepare for the worst. Okay? This is the prudence concept in a nutshell. Now, Pruden concept is a fundamental accounting principle that guides how businesses should approach uncertainty, okay? And how to approach potential anticipated losses when preparing the financial statements. So all future anticipated losses, they must be recorded. They must be accounted for as soon as they're foreseeable. If the business is expecting to incur a loss in the near future, they must record it now. Don't wait for the loss to happen. Record it now in the present. Okay? This is the prudence concept. It only applies to losses. Gains, however, they should only be recorded when they are certain, okay? When it's actually incurred. So the Prudence concept only applies to losses, not gains. Now, let's have a look at some examples like provision for doubtful debts, okay? So when a business sells goods on credit, it should anticipate that not all customers will be able to pay back their debts. There's always a margin for error. Some receivables might struggle to pay back due to unforeseen circumstances, due to calamities, maybe communication problems or maybe due to their past record, okay? So what the business should do, create a provision for doubtful debt. Assume the worst, okay? Like, create a percentage. How much percent do you think that your receivables would not pay you? That's called the provision for doubtful debts, and this is in line with the Prudence concept, okay? Moving on provision for depreciation. This is also a very important concept and in line with the prudence concept. So the prudence concept advises that businesses should not overstate their assets. They will create a provision for depreciation, okay? Because as a business consumes non current assets, they lose their value, okay? They lose their function ability. So that loss in value, that reduction is called depreciation. So a business should anticipate those losses, record it now in their financial statements, okay? So that the non current assets, they're not inflated, they're not overstated, okay? Another example is the valuation of inventory. We'll study this in detail, okay? So inventory is supposed to be valued at the lower of two items, the cost and the net utilizable value. Okay? We'll cover this in detail. Don't worry. So when a business discovers that, you know, the inventory is going to fall below the cost, they should immediately make an adjustment, record the inventory to the net realizable value. We'll cover this in detail. I'm repeating it. Do not worry, okay? So these were examples of the Prudence concept. I'll see you in the next video. Thank you very much. 20. The Substance over Form Concept: Come back my genius accountants. In this video, we would shed light on a very interesting concept, which is called the substance over form concept. Now, remember, don't judge a book by its cover. Now, let's have a look at this concept with an example I prepared for you, a small scenario. So XYZ Limited wants to buy a car. Now here's something different. They approach a bank, okay? They're interested in car finance, or, which is also known as leasing or hire purchase. So in this concept of lease, what normally happens that the business would pay a very small down payment to the bank, and every month they'll pay installments for whatever number of years agreed by the bank. Upon the last installment, that's when the bank would transfer the ownership to the company. So this is the entire policy of car financing. So the bank eventually agreed, fine. Now, what was their policy? It's a five year installment plan, which is going to cost XYZ $100 per month. Okay? So that's about 60 payments, $100 per month for five years, and the ownership would be transferred on the last payment, okay? So this is the entire policy of car financing. Now, I want to ask a small question to you guys. Who owns the car? Okay? Who actually owns the car? And who will charge the depreciation of the car. These are very, very important questions. Now, when XYZ Limited is paying installments, technically, the ownership of the car is with the bank. They only have the possession of the car. However, the substance over form concept states that the substance is greater than the legal form. The substance is the actual tangible physical, non current asset, the car, and the legal form is the legal paperwork, which belongs to the bank. But accounting says the substance over form concept says we don't care about that. If we have the substance with us, we have the car with us, so that's greater than the legalities. So we'll assume the company owns the car. Okay? Now, this is a pretty reasonable concept. Later on, we'll discuss depreciation. Now, if the company is consuming using the car roughly, why should the bank charge depreciation? Isn't it? The company is using the car, so they should charge depreciation. So, in this case, the company XYZ Limited, they own the car. Okay. Now, let's have a look at the theory. The substance over form concept states that financial statements should reflect the true economic substance, even if it differs from the legal structure. The legal structure, the legalities are completely different technically, and it's true. The bank owns the car. Only on the last installment, XYZ limited would own the car. But accounting says we don't care. The substance is greater than the form. In simpler terms, it's about looking beyond the legal paperwork to understand the actual impact of a transaction. Okay. I hope you understand this concept. See you in the next video. Thank 21. The Consistency Concept: Hello, my genius accountant, so I'll come back to the next video. In this video, we would discuss a concept which is called the consistency concept. Remember, uniformity, consistency is the key. Okay. Let's dig right in. So consistency concept is a fundamental accounting principle that requires a business to use the same accounting methods and procedures for at least one period, okay? Now, it's very, very important for business to use principles consistently. Otherwise, this could create inaccurate accounting records, create confusion, create disorder. So it's very, very important to use the same accounting principles for at least one accounting period, okay? This ensures that financial statements of different periods are comparable like 2021, financial statements could be compared with 2022. If I change everything after every two months, it would be very difficult to maintain and to compare, okay? Let's have a look at some examples, inventory valuation. Now, there are different methods of inventory valuation. There's the first in first out method, the last in first out method, the weighted average method. So if a business uses one method, stick to that method. If it's 54, stick with 54. If it's weighted average, stick with the weighted average method. Depreciation. Even in depreciation, there are many methods we'll discuss the straight line method, the reducing balance method. So if a business uses straight line, stick with straight line. Do not change your method, okay? So, guys, this was the consistency concept. Now, you might be wondering, what if there are some special circumstances where the business has to change their policies? If there's a takeover, another company took over your company. If there's a change in the accounting standards or even if the management seems that it's necessary. We have to change the counting methods due to some technical reasons. The business can do that, but it should maintain proper disclosures. The nature of the circumstances must be disclosed properly and effectively, okay? Right. See you all in the next video. Thank you very much. 22. The Going Concern Concept: Come back, my genius accountants. We are now on the last accounting concept, which is called the Going concern concept, which means born to last. The business is born to last. Now, the Going concern concept is a fundamental accounting principle that assumes a business will continue to operate for the rest of its life. Or at least 12 months, the foreseeable future. It will operate indefinitely. Oh, for a long time. The business has sufficient resources to survive. The business has the capacity to do well, to survive, to fulfill all its financial obligations without the threat of liquidation, okay? So this is the going concern concept. Now, let's look at an example of depreciation. Let's assume in 2010, the business had a car, and depreciation would be $1,000 for seven years, meaning from 2010 right up till 2016, that's seven years. Now, what the business could do they could charge $7,000 in 2010. All the depreciation in the first year. But remember, this is not in line with the matching concept as well because this car would generate revenues for the next seven years. So the depreciation expense should be recorded in each year separately. That's the matching concept. But even as per the going concern concept, they say that the depreciation expense should be spread out for the next seven years. The business will survive. The business will be there for a very long time. They can pay this depreciation for the next seven years, which is why record this in each year separately, okay? The business is not going anywhere. It will stay there forever, so don't worry. So instead of expensing the entire cost of an asset in the S purchased, it's spread throughout several years. This is the matching concept what we saw in the previous videos. Now, this makes sense, okay? That the cost of the asset, the depreciation would be spread throughout the useful life, okay? Because it would generate revenue for many, many, many years. The business will survive for many, many, many years, okay? So, this was one example. Let's have a look at another example. Why do we segregate liabilities between current and non current? Current liabilities are payable up to 12 months and non current liabilities are payable after more than 12 months. And the payment deadline could be five years, ten years or 15 years. This segregation between current and non current is also in line with the going concern concept, okay? Now, let's have a look at the segregation. This segregation shows that a business, they can easily meet their short term obligations, their current liabilities. They can do that easily. They have the resources to cover all their short term debt. So at least they can operate for a year. This is the going concern concept. Secondly, it also shows long term stability. When a business borrows a long term loan, the deadline is massive, five years, ten years, 15 years. And if they borrow debenches from their shareholders, the time frame is even longer up to 20 years or even more. So this shows that the business will survive for all these years. They can easily meet their obligations for a very, very long time. Interest obligations. This is very similar with the second point. When the business borrows loans, a long term loan, what I told you for up to 20 years, they have to pay interest for 20 years, okay? But the very fact that they can pay the interest for many, many years, they have the sufficient income to meet all the interest obligations. This is the going concern concept that the business will survive forever for an indefinite period of time, they have the resources, they have the capacity to meet all their short term obligations, the interest obligations, and even long term obligations. Next, accrued rent. Now, accrued rent refers to that portion of your expense that you have not yet paid. So that's getting accumulated. That's getting accrued. You owe this expense to your landlord. Now, let's have a look at an example. Now, let's assume in January 2021, XYZ Limited took this building on rent from Christopher. So Christopher is the landlord, and the tenant is XYZ Limited. And the policy was $100 per month. So this would be 12 payments from January right till December. But the business made a mistake. They only managed to pay the rent till September. So October, November, December, $3,000 was unpaid. This is the accrued portion. Now, when did the business pay the $3,000 in March 2022. So almost after six months, they paid the remaining rent. Now, even though this rent was paid in the month of March, the business would record this in 2021, okay? Because the Guin concern concept says that this is not a problem at all. The business will pay the accrued rent. It's not a problem for them. They have all the capacity to pay. They have the ability to pay. It's not a problem. So this accrued rent would be recorded in 2021, okay, instead of 2022. This is also in line with the matching concept because this rent of $3,000 does not relate to 2022. It's for the period 2021. So this is where this accrued rent would be recorded. I hope you guys understood the going consent concept. See you in the next video. Thank you very much. 23. Accounting Ethics: Welcome back genius accountants. In this video, we would be covering accounting ethics, okay? Balancing profit with principles. Okay? So accounting ethics refer to the model guidelines. The model principles, the accountant must follow when doing the accounting of the business. So let's see what are all these principles. Number one is integrity. Now, integrity means being honest, straightforward in all your business and professional relationships, okay? And don't even associate yourself with any information that's false or misleading. For example, an accountant discovers an error in the financial statement that overstates the company's revenue. Now, acting with integrity, the accountant must report the error to the management. He mustn't override this important matter, okay? The second principle is confidentiality, respecting the privacy of the business information, not disclosing it to third parties or family and friends, okay? An accountant works for a company, he learns about a potential merger. Now, he must not share this information with others. This is confidentiality. Objectivity means not allowing biasness, conflict of interest or undue influence to override the professional or business judgments. Okay, for example, an accountant is asked to audit the financial statements of a company where close friend is the CFO. So to maintain objectivity, the accountant should disclose this, and he should withdraw himself from the audit. This is very, very important. Otherwise, the judgment he makes would not be professional. It would be with biasness. He could protect the interest of his friend's company. Okay? Next, professional behavior, the accountant must always maintain professionalism. He must not engage himself with any action that could discredit the accounting profession. For example, an accountant is offered a bribe. Now, upholding the professional behavior, he must refuse the bride straightaway and report this to the management. Lastly, professional competence and UK. The accountant must have you must possess the required skills and competencies and continuously upgrade his skill set. For example, an accountant regularly attends training sessions and courses to stay up to date with all the latest accounting standards and practices, okay? So these were all the accounting ethics. See you in the next video. Thank you so much.