Define Accounting

Reviewing accounting after a 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 know the keys of the business accounting terms and the meaning of these terms. As well as it is also helpful for the preparation of tests only for initials.

Define Accounting:

 Different authors define accounting in different ways but the core idea of all the definitions has been the 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 bookkeeping are two different parts, "the first part of recording and posting is considers as bookkeeping and the second part of the definition is an analysis of this record for a financial period is considered as accounting".

Accounting allows a business person or a company to analyze his/its financial position in term of profit and loss.

Define Asset

Anything or economic value which is owned by a company or a person for business purpose especially those items which can easily be converted into cash or easy to liquidate such as "account receivables, securities, inventories or office equipment are defined Assets.

Assets are divided into the 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 costs such as insurance, rights to use an area, rent, and interest).

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

Define Liabilities

Any kind of obligation which bends a company or a business individual to settle is known as liabilities or a state of being legally responsible for anything especially an amount of money.

Liabilities are of two kinds:

Current/Short term liabilities are debts payable within one or less than one year.

Long-term liabilities are those debts that are payable in a longer period.

Define Owner/Shareholder's Equity

Define Owner/Shareholder's Equity:

When we talk about the owner/shareholder's equity, it represents the share of the owner after paying the liabilities, less drawing & other withdrawal & by adding the net income (losses) amount from the beginning of the business, sometimes it is equal to the asset in the business.                                      

                                              Owner Equity = Assets - Liabilities

If ABC company buys a car amounting to $1,000,000/- and paid amount of $600,00/- from their available capital and of $400,000/- borrowed from any financing institution, then we'll consider the owner/shareholder's equity in that investment is of $600,000/ and liability is of $400,000/-.

Now the equation mention above will get easier to understand:

                                             Owner Equity = Assets - Liabilities

                                                600,000    =  1,000,000 - 400,000

                                                                        or

                                              Assets  = Owner Equity + Liabilities

                                                1,000,000 = 600,000  +  400,000

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.