Essay Generally Accepted Accounting Principles and Balance Sheet

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----Prudence revenue: conservative
Expenses/losses: liberal
Recognising revenue at a reasonable time
Recognise a sale when we reasonably think that it has been completed
When shld we recognise a sale a. order b. dispatched c. customer acceptance d. cash

It depens on your organisation. If you despatch orders immediately they are ordered, that you r company can recognise sale as completed by stage 1

Accrual Match your expenses with your revenue. Present your information in such a way that the accounting users know where you are and where you are going. If a situation arises where you have to change your accounting system do so otherwise be consistenet in the method that you use. And if you have to change then you may have to adjust your old systems say the year before to the new system.

Materaility Significant information are those info that can change the …. Of the accounting system. Should not recognise the economic inflations in your country.

Question 4 Accountning concepts are just assumptions. This will guide you as to which assumption should be applicable

LECTURE – 06/02/2012

Liabilites- What we owe as a businees eg load, staff we have not paid, businesses that we owe

Assets- what we own eg uel- furniture

Balance sheet also known as the Statement of Financial Position – when we add all our assests and liabilities, it must balance. what we owe should be equal to what we don’t owe

Total Capital employed in the business- If I have £2000 and borrow £18000 from the bank. I have £20000 capital employed

Objectives of a financial statement- provide information about the changes in financial position of an entity.

Capital and liabilities- where the money has come from (the source of funds) Assets- what we used the money for.

The source of funds can be: Internal – our own funds which we have raised Or External- debts which we are owed

Assets= Liabilities + Captital owners’ equity At any point in time, what we owe + what we own ( whether internal or internal ) should be equal to what we own.

What to note when studying for exam reasons- What an asset is

Balance Sheet equation is usually stated as: Assets = Debt (liabilities) + Equity (uses of finance = sources of finance)

Limited Liability company is the shareholders(owners) liability is only limited to the amount of investment they have made in a business. If each share holder invested £10 each then that is only what they are responsible for.

In the case of an unlimited liabililty company, if the company is owing the debtors can come for the wife an dchildren

Asset is anything of value that a company owns including cash. Even if it was bought on credit and you promised to pay later, it is still an you bought a car and gave a deposit of £2000 and you are paying £300 pay month. It is still an asset but you have to recognize also that you have created a liability.

An asset ought to generate economic (wealth- more money) benefit. It is no longer generating wealth , it is no longer an asset.

Only items that we can quantify in monetary term can be placed ona financial statement. Emplyees are not assets, they are resources

There are 2 types of Asstes-

Tangible assets- Assets we can see and touch (physical) Tangible Fixed Asssets also called a non- current access- you can touch and will last more than one year in a business eg building, computer. If we cannot use it for maore than one year then it is not a fixed asset. The order of permanence eg on the balance sheet, the land will come before the building followed by those that are more likely to deteriorate and depreciate

Example of tangible Fixed Asssts

Land, Premises or building, Equipment or plant machinery, motore vehicles, furnitues, fixtures and fittings, Computers.