Scribd
Upload
138 views4 pages

Examples of Current Assets Include

The document defines key accounting concepts such as internal and external users of accounting information, current and fixed assets, current liabilities, the revenue recognition principle, and generally accepted accounting principles (GAAP). It also outlines the basic steps in the accounting recording process, which includes analyzing transactions, recording them in a journal, and posting them to accounts in the ledger. Finally, it states the basic accounting equation that assets must equal liabilities plus owner's equity.

Uploaded by

Mujahid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
138 views4 pages

Examples of Current Assets Include

The document defines key accounting concepts such as internal and external users of accounting information, current and fixed assets, current liabilities, the revenue recognition principle, and generally accepted accounting principles (GAAP). It also outlines the basic steps in the accounting recording process, which includes analyzing transactions, recording them in a journal, and posting them to accounts in the ledger. Finally, it states the basic accounting equation that assets must equal liabilities plus owner's equity.

Uploaded by

Mujahid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Internal users of accounting information are managers who plan, organize, and run the business.

These include
marketing managers, production supervisors, finance directors, and company officers.
External users are individuals and organizations outside a company who want financial information about the
company. The two most common types of external users are investors and creditors.
Investors (owners) use accounting information to decide whether to buy, hold, or sell ownership shares of a
company.
Creditors (such as suppliers and bankers) use accounting information to evaluate the risks of granting credit or
lending money.
A current asset is cash or any asset that can be reasonably converted to cash within one year.
Examples of current assets include:
 Cash and cash equivalents.
 Accounts receivable.
 Inventory.
 Short-term investments.
 Notes receivable.
 Prepaid expenses (e.g., insurance premiums that have not yet expired)
 Marketable securities.
Fixed assets refer to long-term tangible assets that are used in the operations of a business.
Examples of fixed assets are land, buildings, manufacturing equipment, office equipment,
furniture, fixtures, and vehicles.
A current liability is an obligation that must be repaid within the current period or the next year
whatever is longer
Examples of current liabilities:
 Accounts payable.
 Sales taxes payable.
 Payroll taxes payable.
 Income taxes payable.
 Interest payable.
 Bank account overdrafts.
 Accrued expenses.
 Customer deposits.

Monetary Unit Assumption The monetary unit assumption requires that only those things that can be expressed
in money are included in the accounting records. This means that certain important information needed by
investors, creditors, and managers, such as customer satisfaction, is not reported in the financial statements.
Economic Entity Assumption The economic entity assumption states that every economic entity can be separately
identified and accounted for. In order to assess a company’s performance and financial position accurately, it is
important to not blur company transactions with personal transactions (especially those of its managers) or
transactions of other companies.
Time Period Assumption The time period assumption states that the life of a business can be divided into artificial
time periods and that useful reports covering those periods can be prepared for the business.
Going Concern Assumption The going concern assumption states that the business will remain in operation for
the foreseeable future. Of course, many businesses do fail, but in general it is reasonable to assume that the
business will continue operating.
The historical cost principle dictates that companies record assets at their cost. This is true not only at the time the
asset is purchased, but also over the time the asset is held.
The fair value principle states that assets and liabilities should be reported at fair value (the price received to sell
an asset or settle a liability). Fair value information may be more useful than historical cost for certain types of
assets and liabilities.
When a company agrees to perform a service or sell a product to a customer, it has a performance obligation.
When the company meets this performance obligation, it recognizes revenue. The revenue recognition principle
therefore requires that companies recognize revenue in the accounting period in which the performance
obligation is satisfied.
The revenue recognition principle requires that companies recognize revenue in the accounting period in which
the performance obligation is satisfied. Revenue is recognized at the time the service is performed.
The matching principle dictates that efforts (expenses) be matched with results (revenues). ///Match expenses with
revenues in the period when the company makes efforts to generate those revenues.
The full disclosure principle requires that companies disclose all circumstances and events that would make a
difference to financial statement users.

A company identifies the economic events relevant to its business.


It records those events in order to provide a history of its financial activities.
Recording consists of keeping a systematic, chronological diary of events, measured in dollars and cents.
Communication of the collected information to interested users by means of accounting reports. The most
common of these reports are called financial statements.
A vital element in communicating economic events is the accountant’s ability to analyze and interpret the
reported information. Analysis involves use of ratios, percentages, graphs, and charts to highlight significant
financial trends and relationships. Interpretation involves explaining the uses, meaning, and limitations of
reported data.

Generally Accepted Accounting Principles


The accounting profession has developed standards that are generally accepted and universally practiced. This
common set of standards is called generally accepted accounting principles (GAAP). These standards indicate how
to report economic events.
As markets become more global, it is often desirable to compare the results of companies from different countries
that report using different accounting standards. In order to increase comparability, in recent years the two
standard-setting bodies have made efforts to reduce the differences between U.S. GAAP and IFRS. This process is
referred to as convergence. As a result of these convergence efforts, it is likely that someday there will be a single
set of high-quality accounting standards that are used by companies around the world.

Importance of accounting:
 Helps you in audit and legal matters
 Helps save time
 Gives professional advice
 Helps cut down costs
 Helps manage expenses
 Ensuring the quality of financial reporting
 Protectors of public interest
Transactions (business transactions) are a business’s economic events recorded by accountants. Transactions may
be external or internal. External transactions involve economic events between the company and some outside
enterprise. Internal transactions are economic events that occur entirely within one company.

Steps in the Recording Process


1. Analyze each transaction for its effects on the accounts.
2. Enter the transaction information in a journal.
3. Transfer the journal information to the appropriate accounts in the ledger.
The recording process begins with the transaction. Business documents, such as a sales receipt, a check, or a bill,
provide evidence of the transaction. The company analyzes this evidence to determine the transaction’s effects on
specific accounts. The company then enters the transaction in the journal. Finally, it transfers the journal entry to
the designated accounts in the ledger.

State the accounting equation, and define its components.


The basic accounting equation is:
Assets = Liabilities + Owner’s Equity
Assets are resources a business owns. Liabilities are creditorship claims on total assets. Owner’s equity is the ownership claim
on total assets.3
The expanded accounting equation is:
Assets = Liabilities + Owner’s Capital - Owner’s Drawings + Revenues - Expenses
Owner’s capital is assets the owner puts into the business. Owner’s drawings are the assets the owner withdraws for personal
use. Revenues are increases in assets resulting from income-earning activities. Expenses are the costs of assets consumed or
services used in the process of earning revenue.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy