In our tutorial, Expenses Definitions and Examples, we'll learn exactly what expenses are and how they affect the accounting equation. Financial statements are prepared on the assumption that the business will remain in operation in future periods. This is also the stuff which - if you didn't get it down early on in your accounting studies - you'd be screwed later on! Thus, a firm sells goods worth Rs100; the two simultaneous implications on the seller are: And those on the purchaser would be (1) receipt of goods for Rs 100 and (2) forgoing cash Rs 100. The financial position of all companies both large and small, while similar, are calculated slightly differently depending on the business entity: For sole proprietorships: Assets = Liabilities + Owner’s Equity. I really mean it. Many factors of vital performance are outside the purview of accounting. In case if you wish to join our forum, please send an email seeking an invitation to "[email protected]". Accounting assumptions are broad concepts that develop GAAP (Generally Accepted Accounting Principles) upon which all the accounting is based. The financial position of all companies both large and small, while similar, are calculated slightly differently depending on the business entity: For sole proprietorships: Assets = Liabilities + Owner’s Equity. Are the universally accepted rules on the basis of which accounting practices take place. A transaction, On December 31, 2013, the interest receivable on a fixed deposit was 1000 (assuming that the accounting year was to be closed on December 31, 2013). Content Filtrations 6. Financial period chosen, in this regard, should be neither too long nor too short. Maybe this sounds kind of dumb, but you'd be surprised how many students don't really know what it is they're studying and why. An accounting period could be a year, half-year or even a quarter. Income is something else. Click here for Privacy Policy. This concept tends to result in more conservative financial statements. When an asset is acquired for Rs 5,000, it is recorded in the account books at Rs 5,000 even though the market value may be different. All costs incurred during the period are taken. According to the Objective Evidence concept, every financial entry should be supported by some objective evidence. Since profit is an excess of revenue over expenses, it becomes necessary to bring together all revenues and expenses pertaining to a particular period. Lesson Five: Liabilities: Definition and Examples Lesson Six: What is Owners Equity? Money is an asset. “Double Entry book-keeping is a system of accounting by which receiving and giving aspects of each transaction are recorded at a time.” As such transaction affects giving account and receiving account equally, the assets of a business entity will always be equal to its equities, i.e., Total Assets = Capital + Outsiders’ liabilities. By doing so, there is no intermingling of personal and business transactions in a company's financial statements. Accordingly, continuity of activity is assumed, thus accounting reports are fashioned as a going concern, just as against liquidation. The financial reports prepared facilitate to make good decision, corrective measures, expansion etc. Similar practice is followed for expenditures. The proprietors—sole trader, partners of a partnership firm etc. Lesson Seven: The Accounting Equation and Financial Position Lesson Eight: Basic Accounting Test. But under cash accounting system, the revenues and costs are recognized only when they are actually received or paid. TextStatus: undefined HTTP Error: undefined, Upcoming in 2020 - Forum, Academic Content, E-books, Financial Content, Quiz, Interview Practice, Templates, PDFs, etc. For the sake of quality, our forum is currently "Restricted" to invitation-only. It is relevant to consider them while working out the financial results, only because they are related to the concerned accounting period.
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