Jan 25, 2011 Munya Mtetwa
Accounting Terminology - commons.wikimedia.org
Balance sheets and profit and loss accounts summarises the five main accounting terms which are assets, liabilities, revenue, expenditure and capital.
The article defines and discussed the five main accounting terms that underpin the classification of business transactions, the preparation and interpretation of financial statements. These five main accounting terms are; assets, liabilities, revenue, expenditure and capital.
Income and expenses are recorded in the profit and loss account and assets, liabilities and capital are recorded on the balance sheet.
The accounting framework defines assets as resources controlled by an entity as a result of past events and that they lead to future economic benefits accruing to the business. Control is evidenced by the ability to restrict other from using the resource and this is not limited to ownership only. A past event is evidenced by the business having paid cash to acquire the asset or having entered into a legal agreement that entitles the business to the control of the asset. Future economic benefits can be in the form of cash that will be received or the cash generating ability such as use in manufacturing of products which will lead to sales and therefore cash accruing to the business.
Assets can be classified as fixed asset and current assets. Fixed assets are long term assets that the business acquires for continuing use within the business such as buildings, plant, machinery and equipment. Current assets are assets that will be converted into cash within the earlier of the operating cycle or one year and examples include debtors, stock or inventory, short term investments and cash itself.
Liabilities are current and future obligations to pay another business entity using the business’ economic resources. Like assets liabilities are a result of past events but they lead to... [continues]
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