Entity concept also called entity assumption. It is a basic accounting principle under business or organization. It has two types of entity concept which is a business entity concept and legal entity concept. The business entity concept is the accounting records reflect the financial activities of a specific corporate entity. It is separate from its owners, for example stockholders, managers or the proprietor, that means business can own assets, have liabilities and enter into business transaction. In other words, in the point of view of Generally Accepted Accounting Principles (GAAP), the owner and the business are two separate entities. Besides that, partnership and corporations are also should be accounted for separately. For example …show more content…
It has legal capacity to enter into an agreements or contracts, incur and pay debts, assume obligations. Legal entity concept also can sue and can be sued like any individual to be held responsible for its actions. For example of a legal entity concept, under the legal entity on the deal that were going to be sued because the deal fell through and lost business on it. The benefits of entity concept to the business are it is useful for financial statement users such as permit accountant to examine business in isolation, regardless of their ownership status. In other words, an investor can see clearly either the owner keeps funding the business with owner contributions or because the business has good cash flow from its profitable. Second benefits of entity concept also create a means of the accounting records reflect the financial activities show how a business is performing. Besides that, entity concept also create the guideline that every transaction must be assigned to a single entity, this can avoid from overlapping or duplicate accounting …show more content…
The accounting equation is the basis which the double entry accounting system is constructed. The format of the accounting equation is assets equals to liabilities plus owner’s equity. Assets are the resources that in a company have available for use there are two types of asset which is current asset and noncurrent asset. Current asset is less than one year such as cash, bank and so on. Noncurrent asset is the asset is more than a year like building and motor vehicle. While, liabilities is accounts payable that are owed to suppliers and as a variety of accrued liabilities, such as debt payable to lenders. Owner’s equity is investors paid the amount to the company, actually is their initial investment plus the net income and minus the withdrawals from the business. Accounting equation important because it's always true and it forms the basis for all accounting
It would help in tracking payment receivables, account payables, and ensure that the amount due for and by the Company are completed in time. Likewise, the payroll system allows the follow up, which would ensure that the money owed to the Company is paid within the time set. · Effective internal control system to safeguard the Company
The Benefits of a Bookkeeping Service The need for accuracy as it pertains to financial records is one of the most important aspects of all business operations. All financial transactions must be recorded in order to identify cash flow. The direction of the revenue is important in as much as it tells a story of how well your Mississauga business is doing in the market place. This direction is the cash coming into the business through sales and investments as well as the cash going out through money owed in terms of interest to stakeholders, (investors), and other liabilities, (operating costs).
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
2. A critical component of any accounting theory course is an understanding of the conceptual framework.
A key benefit of equity financing is that the company will not be debt repayments. This is beneficial...
Accounting principles are main consideration , certain standards like rules of operations are pillar characteristicis to built accounting statements. Accounting principles can be presented in many ways, sometimes its create confusion for readers mainly for beginners, but still acoounting principles are main tool to obtained financial statements. Its hold the whole acoounting process together.
The propriety theory of accounting views the firm as an extension of its owners and thus it assumes that the firms and their owners are the same; therefore, there are no separate features between the two. All assets and liabilities of the firm are the assets and liabilities of the owner. By the same token, revenues of the firm are viewed as increasing the wealth of the owners, while expenses decrease it. Moreover, the proprietary concept results in a pro rata consolidation when applied to the preparation of consolidated financial statements. Only the proportionate share of the assets and liabilities of the subsidiary is consolidated by the parent company.
“…separate legal entity possessed of separate legal rights and liabilities so that the rights of one company in a group cannot be exercised by another company in that group …”
In other words, according to the authority definitions have just mentioned, the specific concept of earnings management should be:
Accounting dates back as far as first centuries, is the language of business. As everything has gone through many changes, accounting has also changed many times through out the centuries. It went from the use of abacus to the most advanced softwares, and computers. With these drastic improvements nowadays accounting, financial accounting and management are facing big challenges. From the presentation of the reports to communication to the users, investors, and owners, the accounting field has gained totally a new shape from two decades ago. Today with the dynamic change in every aspect of life, the accounting field has to act fast and be able to adapt these new changes and challenges in order to survive.
1. Corporate Law for Ontario Business (2012). Farah Jamal Karmali 2. Business Dictionary (2010). http://www.businessdictionary.com/definition/separate-legal-entity.html
The Financial Accounting Standards Boards (FASB) defined conceptual framework as a consistent of underlying concepts and the ideas that describe the nature and general purpose of financial reporting which may lead to consistent standard in accounting (Deegan 2010). The role of the conceptual framework is to ensure that financial statements in accounting are free from bias and to provide useful information that is useful for user’s decision making. The standard-setting board also formulated a range of perceptions and theories related to accounting to trigger the objectives of financial reporting. The standard-setting board keeps issuing the conceptual framework over time to ensure that the conceptual framework’s objectives are improving to provide useful financial information. The innovative work on conceptual framework was embraced in the United States by the FASB in the early 1970s. The FASB accomplished disappointment in attempting to generate a standard that at the outset might not appear to present, especially testing theoretical issues. Regardless, while attempting to achieve concession on Statement of Financial Accounting Standard, tending to the theoretical issues produced critical matter for the board members. In this manner, throughout the outset the FASB understood the requirement for an obvious conceptual framework. Based on Hines’s argument, the conceptual framework is mean to provide the ability to increase self-regulate of a profession in order to neutralizing government interference from arising. Whether this argument has been accepted or not will be discussed in more detail with supported evidence to clarify the main point about Hines’s argument. Further details about this argument will discuss below.
Both accounting and finance deal with money and assets; however, they are categorically different concepts. This portion of the essay will discuss the dissimilarities between accounting and finance. Examples of different concepts will be given for both practices.
Accounting aids the government and organisations in decision making for their financial stability. This numerical data helps solve real life problems and contributes to how the economy and businesses perform.
Accounting itself is a system that people has been using for thousands of years, the system records financial information about a person or business, businesses use it in order to be able to keep and track their financial accounts and other financial information in a safe and efficient way. (Brooks, 2012)