Asset and liability basics
Knowledge of accounts can make life much easy. If you are to
invest in a new business or joining your forefather's business,
planning to take some loan, looking for job in any marketing
company, desire to be the manager of a multinational company or
have the onus to manage your own assets and liabilities, knowing
some basics of accounts becomes mandatory.
Broadly, accounting is bifurcated into two categories-
Cash Bases Accounting
Accrual Accounting
The Cash Based accounting pertains to the management of an
individual's personal monetary transactions. In this case, he
keeps a track of the money he withdrew, deposited, gave or
received from someone etc. This accounting comes to life when
actual cash transactions take place.
The Accrual Accounting requires an accountant who notes the
transactions even if no money has been actually exchanged. This
method works on the principle of comparing or seeing the ratio
of the expenses to expenditure. If the expenditure is more, you
need to cut down your luxuries, if not then it's always good to
have some savings for future. This type of accounting tells you
the amount that you owed; this might not match with the figure
of your bank balance.
In the language of accounting there are several key terms that
one needs to be familiar with. Some of the crucial ones are
discussed below-
The Assets- the assets are generally those possessions of an
individual that have a good market value or are quite valuable.
Assets are mainly classified into three types- Current Asset-
the cash is the most basic asset of any individual. The money
that is being held in accounts like the checking and savings
accounts is also included in the cash. Also inclusive are the
marketable securities in the form of bonds, stocks, shares etc.
The money lent or payments due from clients, even form a part of
it.
Fixed Asset- comprises of all the tangible valuable things like
property, machines, equipments, land and the like that are not
meant to be sold.
Intangible Asset- incorporates all the untouchable things like
copyrights, patents, trademarks etc. that have tremendous
monetary significance.
The law of opposites governs the nature; where there are
assets, there will be liabilities. These are the debts that you
have to pay back to your creditors. This can be done through
giving cash or any other asset like jewelry, some other goods
etc. Liabilities again are of two kinds-
1. The Current Liabilities- the liabilities that are to be paid
back within a certain time limit and most often through your
current assets. These include the accounts payable i.e. type of
bill that you have to monthly, the Notes Payable-loans taken
from banks meant to be repaid within 30 days and the Accrued
Expenses- the compulsory expenses like taxes, wages, interests
etc. where the bills are not received but the balances of each
must be repaid.
2. Long Term Liabilities- those debts that can be repaid at ease
for the tenure is more then a month.
The Financial Capital- is the economic capital. It is any liquid
medium or merchandise that stands for wealth or other styles or
capital. There are four ways to manage and display the financial
capital. First, this capital is needed when a contract is made
with any sort of capital asset. The financial instruments work
in the form of currency in case of sale, purchase or trade of
goods i.e. the medium exchanges. Second, it works as a settled
medium or mode like gold for the Standard of Deferred Payment.
Third, The Unit of Account has a market value attached to it
which in turn varies with the economy of the country. Fourth,
The Source of Value is concerned with financial capital that
needs to be saved and recovered. It is a collection of things
like gold, real estate, collectibles etc.
Petty Cash is an important factor in business. It is the
smallest account within a business setting or the cash in bills
and coinage required to pay little expenses.
Types of Business- there are several kinds of business one
should be aware of like
Sole proprietorship- where a single individual who starts the
business owns it too.
Partnerships- the companies or businesses started by two or more
persons where they conjointly own it.
Corporations- involve lot many shareholders or investors who
are responsible in taking decisions for the company.
Limited Liability Companies- can be said to be sisters of
corporations. Here the business members are not under a legal
obligation to pay the debts if the business fails.
Payrolls- the term payroll designates the manner in which you
will be paying the employees of your company and even yourself.
Many multinational companies cater to payroll service provider
companies that do the work quite efficiently.
These are some of the broad guidelines that will help you grasp
the basics of accounting. It is essential to have some such
wisdom for accounts as it is fruitful in all walks of life.
About the author:
Mansi gupta writes about asset and
liability .
Other Related Articles
Forex Course: A Quick Forex Guide for Traders
In this Forex course we will review some steps you need to take
care before you venture into your trading journey. Most traders
venture into the Forex market with little or no experience in
the Forex market. This results in painful experiences like
loosing most of the risk capital, frustration...
Why You Need To Buy and Sell Gold Coin(Part 1)
The Value of Gold in a Era of Paper Assets, Stocks, Bonds and Mutual Funds... The facts behind the increasing demand for gold and silver, rare coins, and historic collectibles from the U.S. Mint... No other substance on Earth embodies the unique characteristics of gold. Its yellow lustre and...
The Stock Market Is A Game
As a kid, have you ever played the board game Monopoly? This is
a game that deals with properties, banks, infrastructure, and
millions of colorful dollars.
Like in Monopoly, the stock market is a game in which you have
to decide the buying and selling of your properties. Although in
the...
Forex Course: A Quick Forex Guide for Traders
In this Forex course we will review some steps you need to take care before you venture into your trading journey. Most traders venture into the Forex market with little or no experience in the Forex market. This results in painful experiences like loosing most of the risk capital, frustration...
Why You Need To Buy and Sell Gold Coin(Part 1)
The Value of Gold in a Era of Paper Assets, Stocks, Bonds and Mutual Funds... The facts behind the increasing demand for gold and silver, rare coins, and historic collectibles from the U.S. Mint... No other substance on Earth embodies the unique characteristics of gold. Its yellow lustre and...
The Stock Market Is A Game
As a kid, have you ever played the board game Monopoly? This is a game that deals with properties, banks, infrastructure, and millions of colorful dollars. Like in Monopoly, the stock market is a game in which you have to decide the buying and selling of your properties. Although in the...