The accounting is the process used to record and report financial transactions to internal and external users. All financial information must be balanced in a company, this is done using the basic formula of accounting assets = liabilities + equity. This formula is the basis of all accounting , with each part representing specific parts of the company.
Assets are everything a company owns that has a value and is used in business operations. Current assets include cash, accounts receivable, short-term investments and inventory. These items are used to pay current liabilities and other short-term obligations. The assets include property, plant and equipment used to produce goods and services sold by the company.
Similar to assets, there are two types of liabilities in a company: the current and noncurrent. Current liabilities include accounts payable and short-term checks, non-current liabilities include debt obligations and long-term bank loans. The liabilities are separated into the balance sheet, so that internal and external users of financial information to calculate how much debt a company has. Large accounts long term debt may indicate a company with too much debt. These liabilities generally show the current and current evaluations in the accounting equation, leaving the remaining balance in equity accounts.
Net worth is any money that the owner of a company has invested to start the business. Some owners may have personal investment evaluations continuously in their companies until they make a profit. Stockholders’ equity (money invested in the company from external parties) is also included in equity. Any money earned from operations and reinvested in the business are called retained earnings, and this also contributes to the portion of equity in the accounting equation.
The accounting cumulative accounting is the only method recognized by the Standards Accounting Board (FASB, for its acronym in English). The accounting cumulative relationship follows the principle of which states that earned income should match the expenses used to earn that income. The principle of relationship ensures a smooth flow of financial information every month, giving a clear trend of financial reporting for business operations.
The FASB standards creates accounting in the United States, called Principles of Accounting Generally Accepted (GAAP, for its acronym in English). These standards of accounting are based on principles, and allows accountants to exercise some independent interpretation when applied to financial transactions. The standards of accounting based on rules, such as the Standards of Accounting International (IAS, for its acronym in English), require that accountants follow the specific rules described in each standard regarding financial transactions. The FASB GAAP updated periodically when new problems in accounting standards emerge and must be accommodated for accountants to use them in technical issues.