Having problems in your accounting subject? Do not worry because you are not alone. In fact, if you would just be keen enough on observing your classmate’s understanding on the subject you would be surprised that half of your class would probably be having problems with it. And probably to cope up with the class they are just studying very hard to pass every exam. Of course, I cannot argue with it because I’m also doing this my entire life. But what’s wrong with my approach in studying is I dedicated a very large amount of time understanding complex concepts rather than focusing on the basics. If you are here to learn the basics, you are on the right path.
To start with, I’ll ask you this, What is accounting? Accounting is a process of record keeping numerical informations about a company. Such information are gathered by bookkeepers or accountants for presentation to the owners in the form of financial statements.
Where does such information come from? Such financial statements come from the following:
These are the company’s possesion that can bring benefit to the country in the future. Some of the best examples of assets are: money, land, computers, building. All the properties owned by a company is considered as an asset. To further assess if a thing is an asset to a company, you may ask yourself these questions: Is it owned by a company? What is the exact value of the asset? Will it be beneficial to the company? The examples stated above are considered as an asset because they all conform to the criterias given. How about your employees? Can you consider it as an asset? Using the 3 questions above, it can be seen as an asset but it is not. First, an employee is not owned by a company. Second, yes, employees can bring a huge amount of money to the company but you cannot exactly value the price of an employee.
Assets= liabilities + Owner’s equities
Liabilities is the exact opposite of assets. If assets give you benefits, liabilities lessen your assets. These are debts that your company owes to others. Some examples of liabilities are bank loans and creditors. Creditors, assets that you owe other people or company. Example, if you are in retailing business you have your supplier. The supplier can be called as your creditor and the products you owe them is the amounts payable.
- Owner’s Equities
These are the owner’s share of the assets. If you will be re-analyzing the formula,
Assets=liabilities + owner’s equities
The company=(debt from other company) + owner’s shares.
That’s all folks!
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