|Knowledge of accounts
can make life much easy. If you are to invest in a new business
or joining your forefatherís 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
Broadly, accounting is bifurcated into two categories-
Cash Bases Accounting
The Cash Based accounting pertains to the management of an individualís
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
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 itís 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
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
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
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 Learn more at http://www.assetsandliabilitiesbook.com
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