Introduction
Accounting is the process of work where an accountant or account related personnel keeps the company’s financial accounts. The process of work includes recording, storing, sorting, retrieving, summarizing and presenting in financial reports. The purpose of accounting is to provide information that is needed for making of economic decisions and to help in defining the financial position of a company. Accounting is very important to a company.
Accounting Equation
The Accounting Equation also called the balance sheet equation is the most basic principle used in accounting. It relates to three categories of accounts, assets, liabilities and owner’s equity. It states that during the period, the value of assets a business owns is
Cost of Goods Sold, the cost incurred in the manufacture or procurement of inventory is charged to the income statement of the accounting period in which the inventory is sold. Therefore, any inventory remaining unsold at the end of an accounting period is excluded from the computation of cost of goods sold. Government GrantsIAS 20 Accounting for Government Grants and Disclosure of Government Assistance requires the recognition of grants as income over the accounting periods in which the related costs (that were intended to be compensated by the grant) are incurred by the
For example, a sole proprietorship is only asks for pay an annual fee to the Companies Commission of Malaysia to renew its business from year to year. Besides, no audit and annual application requirement is needed .This kind of business is owned by only one individual and the business is managed by the sole proprietor. It can be assisted by the family members of sole proprietor or some staff. Advantages of it include sole proprietor easy to manage the business because account of whole business can handle easily by the sole proprietor compared to the private limited company or public limited company. Sole proprietorship also is the cheapest. Normally, sole proprietor of small business will automatically do its own accounts. They do not find the big accounting firm likes PriceWaterhouseCoopers or Ernst&Young to provide their professional in accounting or accounting information into the business’s account. This is because the fee is expensive and it will become a great strain on the resources of the sole proprietorship. In a nutshell, a sole proprietorship normally will be the simplest and cheapest compared to another two types of business. Disadvantages of it include this type of business will be so dangerous when it is setting-up a lot of liability. If the business fails, the sole proprietor is required to personally settle all the liabilities on behalf of whole business.
Financial statement users around the globe use financial statements to evaluate the performance of companies (Fundamentals of Financial Accounting, 2006). In order to locate a company’s reported assets, liabilities, expenses and revenues, statement users rely on four types of financial statements. The four financial statements include: Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows (Fundamentals of Financial Accounting, 2006, p. 6). Each of these reports provides different information to the financial statement user. The Balance Sheet reports at a point in time: a company’s assets (what it owns), liabilities (what it owes) and stockholder’s equity (what is left over for the owners) (Fundamentals of Financial Accounting, 2006, p.7). The Income Statement shows whether a business made a profit (net income) during a specific period of time (Fundamentals of Financial Accounting, 2006, p. 10). The Statement of Retained Earnings illustrates what portions of the company’s earnings was paid to stockholders and retained by the company for future operations (Fundamentals of Financial Accounting, 2006, p.12). Finally, the Statement of Cash Flows reports summarizes how a business’ “operating, investing, and financial activities caused its cash balance to change over a particular range of time” (Fundamentals of Financial Accounting, 2006, p.13).
Sole Proprietorship: This a type of organizational form “where there is no legal distinction between the business and its owner”. ( ) Are easy to start, as well as relocate. There is complete autonomy over every aspect of the business and 100% of the profit is retained by the owner and only taxed once. Although there is often a high tax rate on the profit and the capitol needed to start or grow the business can only come from the sole owner or their personal means of credit. Because the business and the owner are legally the same entity there is unlimited liability to the owner to honor all contracts. Also due to the lack of legal separation the business ceases to exist upon the death of the owner.
Under the accrual basis of accounting, expenses are matched with revenues on the income statement when the expenses expire or title has transferred to the buyer, rather than at the time when expenses are paid. The balance sheet is also affected at the time of the expense by a decrease in Cash (if the expense was paid at the time the expense was incurred), an increase in Accounts Payable (if the expense will be paid in the future), or a decrease in Prepaid Expenses (if the expense was paid in
Accounting is basically a service activity. Its purpose is to provide quantitative information that principally used by the managers, investors, tax authorities, and other decision makers to make the financial decisions within companies, organizations, and public agencies. Accounting is also widely known as the “language of business.” An accountant measures, communicates, and interprets financial activities. They prepare financial statements or reports for individuals, businesses, government agencies, or other non-profit organizations. They use the accounting systems to categorize the expenses and income to the typical groups. They also keep tract of the money received or paid out to see if the transactions are accurate and complete. Accountants are familiar with the computer operation. They use the computer...
Accounting is also the interpretation of the results of what money comes into and what money comes out of the business (What is the Modern Definition of Accounting, 2016). The purpose of accounting is to record, report, review, and analyze that data shown by the businesses financial state. The recording is important because it shows the transactions of what was being spent and what was gained. Reporting the information shows the stakeholders what they are paying for when the use the hospital's services. Before the data can be reported it must be made into a form that ordinary people can understand. The stakeholders and other entities can then analyze it to make sure that the data makes sense and is flawless (MSG Management Study Guide, 2017). Accounting and finances go hand in hand. It is hard to have one without the
It 's called the balance sheet because liabilities and assets have to balance each other out. Put simply, liabilities plus owners equity must equal assets. There are a few categories of assets used on the balance sheet. Current assets are those that are considered most liquid and consist of "cash and marketable securities, accounts receivable, and inventories" (Melicher & Norton, 2014, p. 360). Fixed assets are property, plant, and equipment (PP&E) that is owned by the company. The value of fixed assets is recorded on the balance sheet as the original cost of the asset minus any depreciation. Intangible assets includes all other components of a firm 's value that is not captured by current and fixed assets like "patents, copyrights, trademarks, franchises, and goodwill" (Investopedia, 2015). Equity is generally lumped into three categories for corporate balance sheets: preferred equity, common stock, and retained earnings.
There are two types of limited companies: Private and public. Shareholders own private limited companies. Members of the public cannot buy the shares and the shareholders cannot buy or sell their shares without agreement from the other shareholders. Family owned businesses or larger businesses such as Virgin would fit into this category. Public limited companies have shares on the stock market and can be bought and sold by any member of the public, this way the company can raise further capital and expand their resources. Tesco and British Telecom are such examples. Both these types of limited companies have limited liability, which means the owners of the business are only liable for the amount they invested in the business (unless the debt is so large that the business has to be sold to repay the debt).
Accounting involves recording, classifying, summarizing, and interpreting financial information. Financial information is presented in reports called financial statements. Accountants need to collect information about business transactions and record them in order to be able
Financial accounting is the analysis, classification, and recording of financial transactions and reporting such information to respective users especially external users who use the information to make decisions about their engagements with the entity. In financial accounting general purpose financial statements are used for external reporting. The public by standards imposes the development of the statements through respective national professional bodies, International Accounting Standards Board and respective company Acts for various nations.
Accounting is the pillar of every company to measure its growth, loss, revenue , capital, its really specify the real terms in foam of figures and sometimes in tables, in accounting there are certain rules are obtained to make more accuracy while playing with figures.
An accountant makes sure that the Nation’s firms are run efficiently, the public records are kept accurately, and that taxes are paid properly and on time (“Accountants and Auditors”). Accounting is the study of how a business tracks their income, assets, expenses, and many other things for a period of time. They also do many other things like quality management, tax strategy, and health care benefits management (“Welcome to Careers in Accounting”). An accountant is crucial to the success of a business, without one the business tends to fail.
The main objective is to maintain uniformity and consistency in accounting records. These concepts constitute the very basis of accounting. All the concepts have been developed over the years from experience: Business entity concept, Money measurement concept, Going concern concept, Accounting period concept, Accounting cost concept, Duality aspect concept, Realisation concept,
Accountants prepare a financial statement of the business by analyzing account information business entity. The report stated in financial statement must be accurate with respect to the next user of financial information. They prepare, analyze and examine financial reports, taxes and monitor information system. This information furnish to the manager of the business, industrial and government.
a. What is accounting and how does it help you manage your personal finances? Accounting is a method of keeping records or reports such as the income statement, cash flow statement and balance sheet to see your financial situation. Siegel and Yacht (2009) noted that, accounting is the process of seeing what is coming in and what is going out. It helps to show where there is a deficit and where there is a surplus in terms of income and it helps to make valuable financial decisions and other choices. In personal finance, the accounting records are shown through personal check books, statements from the bank and investment accounts whereas, in business finance accounting journals and ledgers are used to record similar transactions.
Corporations are entities created with the permission of the state and have certain rights, privileges, and liabilities beyond those of an individual. Shareholders are the actual owners of the corporation and elect the directors that establish policies. Doing business as a corporation can have tax or financial benefits, but there are other fees and considerations to consider. Limited Liability Company (LLC) “A limited liability company ("LLC) is a new form of business entity that combines the operational flexibility and tax status of a general partnership with the limited liability protection traditionally associated with limited partnerships and corporations.”