Assets, Liabilities, and Capital: An Examination of the Accounting Equation


Added on  2019-09-23

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Course Topics
Assets, Liabilities, and Capital: An Examination of the Accounting Equation_1

2Course Topics (Fundamental accounting and equation)Overview In fundamental accounting, we will learn about the equations and test the knowledge using a quizafter every two to three topics. Considering the accounting equation shows the relationship between three elements of balance sheet assets, liabilities, and capital. This course aims to learn how to do fundamental accounting using equation. This course first covers the accounting principles and its concept. The second topic covers the various accounting components with its description. The third topic involves the accounting equation that shows the relationship betweenthe three elements. Some sample examples of the accounting equation are also given for a better understanding. How the transactions recorded in the double-entry system and its impact accordingly. The various steps involved in accounting are also considered in this course. The main aim of this topic is to understand basic accounting to form a base for accounts. The further expansion of knowledge in accounting can be possible with this basic understanding.Introduction The purpose in preparation of financial statements is to follow the generally accepted accounting principles (GAAP). This principle is based on fundamental accounting and concepts. The advanced accounting terms start from fundamental accounting. The objectives of financial accounting are to help the small business owner to large business holders. These fundamentals help to understand the equation that determines all business failure and success.The basic accounting principles are highlighted as going concern concept, accrual concept, entityconcept, periodicity concept, and the last monetary unit concept. This accounting assumption
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3Course Topics (Fundamental accounting and equation)provides the guidelines in preparation, presentation, and interpretation of financial statements. Going concern refers to the consistency in business, the operation of the company can continue for an indefinite period. The accrual concept is recognized as the income earned not the income collected. The entity concept treated the business as one accounting entity. This entity is a separate legal entity in the eyes of law. Periodicity concept shows the period of business that is divided into its subtypes. In preparation of the various financial statement, the periodicity concept usually has equal length of a period. The last that is the monetary unit concept study the transaction in terms of currency. The elements of accounting include three elements namely assets, liabilities and capital. Assets are the owned resources of the company. They can be classified into two different parts that are current assets and noncurrent assets. Liabilities mean the obligation to the company to pay off the creditors and lenders. This is also classified into two parts namely current liabilities and non-current liabilities. Capital means the interest of the owner in the company’s performance by deducting liabilities from the assets. In the accounting equation, when the transaction takes place the changes cause, only to stay the equation in balance. This happens because the changes occur in two aspects the account recorded in the financial statement Principles of fundamental accounting:A)Preparation of financial statementB)Presentation of financial statementC)Interpretation of financial statement
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4Course Topics (Fundamental accounting and equation)There is a different assumption in accounting concepts such as going concern, accrual system, entity concept, and monetary unit.Going concernGoing concern reflects the consistency of business over a long period. This concept is also known as continuity, the business will continue financial statement assumption according to going concern assumption the balance sheet items are recorded at its cost, not at fair market value. Long term assets are fully used and replaced in the books of accounts. Going concern means the continuity in business for an indefinite time, where financial statements are made keeping in mind that business will continuously exist in the future.Accrual basisThis method records the values of income when they are earned not when they are incurred. A company rendered some services to the clientSeparate entitySeparate entity concept rePeriodic conceptThe indefinite life the periodic concept follows two periods:
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