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The accounting equation ( Asset s = Liabilities + Owners' Equity ) and financial statements are the main topics of financial accounting. A financial accountant must equal assets with liabilities and owner’s equity. The Balance Sheet (or the statement of financial position) is the financial statement that summarizes the assets, liabilities, and owners’ equity of the company. or 0 = (−) Asset s + Owners' Equity (+) Liabilities . _____________________________/\____________________________ . . / + Retained Earnings (+) Common Stock \ . . _________________/\_______________________________ . . . / (−) Expenses (+) Beginning Retained Earnings \ . . . (−) Dividends (+) Revenue . . \________________________/ \___________________________________________________/ (−)increased by Debit s (+)increased by Credit s simple mapping: subtracting from a negative absolute value Thus -- account increases its -- debiting a debit balance BASIC ACCOUNTING CONCEPTS Financial Accounting produces the Financial reports based on the Four Accounting Concepts 1. Going Concern concept 2. Prudent Concept 3. Consistancy Concept 4. Accrual Concept 5. Rules for entries into accounts 5.Rules for entries into accounts Asset Accounts On increase - debit on decrease - credit Liablity Accounts On increase - credit On decrease - debit Owner's Equtiy Accounts On increase - credit On decrease - debit SEE ALSO EXTERNAL LINKS
MEANING OF THE ACCOUNTING EQUATION The value of a company can be understood simply as the useful assets that ownership of a company entitles one to claim. This value is known as Owners' Equity . Some assets of a company, however, cannot be claimed as Equity by the owners of a company because other people have legal claim to them - for example if the company has borrowed money from the bank. The value of a resource claimable by a non-owner is called a Liability . All of the Asset s of a company can be claimed by someone, whether owner or not, so the sum of a company's Equity and its Liabilities must equal the value of its Asset s. Thus the accounting equation describes what portion of a company's assets can by claimed by the owners. Various account types are classified as ' Credit ' or ' Debit ' depending on the role they play in the accounting equation. Assets = Liabilities + Equity (move assets to the right) 0 = −Assets + Liabilities + Equity |
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