Pages

Friday, 1 April 2016

Accounting

For reviewing the accounting after long time of study as well as it is also helpful for new entrant both to the student and business person to start a business. Before starting the business an entrepreneur must knows the keys of the business accounting terms and the meaning of these terms. As well as it is also helpful for preparation of tests only for initials.

 Different authors defines "accounting" in different ways but the core idea of all the definitions have been same. Earlier "accounting is an art of recording, reporting & analysis of the financial transactions of the business for a certain period of time". Later it is defined as accounting and book keeping are two different parts, "the first part of recording and posting is considers as book keeping and the second part of the definition is analysis of this record for a financial period is considered as accounting".
Accounting allows a business person or to a company to analyse his/its financial position in term of profit and loss.

Asset

Any thing or economic value which is owned by a company or a person for business purpose specially those item which can easily be converted into cash of easy to liquidate such as "account receivables, securities, inventories or office equipment.

Assets are divided into following categories according to the accounting point of view,
Current assets (Cash, bills, securities and other liquidate able things).
Long term assets (Plant and machinery, buildings vehicles).
Prepaid and deferred assets (expenditure incurred for future cost such as insurance, rights to use an area, rent and interest).

Intangible assets (trademarks, patents, copyrights and goodwill).

Liabilities

Any kind of obligation which bend a company or a business individual to settle is known as liabilities or a state of being legally responsible for anything specially an amount of money.
Liabilities are of two kind:

Current/Short term liabilities are debts payable within one or less then one year.
Long term liabilities are those debts which are payable in longer period.

Owner/Shareholder's Equity

Owner/Shareholder's Equity:
Owner's equity represent's the share of owner after paying the liabilities, less drawing & other withdrawal & by adding the net income (losses) amount form the beginning of the business, sometime it is equal to the asset in the business.                                      

                                              Owner Equity = Assets - Liabilities

Accounting Equation

Every business transaction has an effect on company's financial position and the financial position on and organization can be measured by the following items:
Assets
Liabilities
Owner Equity
Using the above terms we are now able to make an accounting equation as:

                                 Sole business    Assets = Liabilities + Owner Equity
                               Corporate    Assets = Liabilities + Shareholder's Equity

Balance Sheet

The statement Which shows the financial position of business at the specific period of time is known as balance sheet. A balance sheet shows the position of a company's assets, liabilities and owner/shareholders equity at a specific point of time. As accounting equation, it shows the company's total value of assets are equal to value of liabilities plus owner/shareholders equity.