ACCOUNTING

Fundamentals of Accounting



Introduction1

Current & Non-Current Assets1

Non-Current Assets & Expenses2

Accruals & Prepayments2

Prudence Concept3

Shares Information4

Conclusion5

References6

Fundamentals of Accounting

Introduction

Accounting is a wonderful however misconstrued field. The famous perspective is that it is basically mind numbing number crunching; it unquestionably has some of that, yet it's too a rich savvy hunt with a plenitude of convincing and dubious issues. This involves systematic recording and analysis in the accounting reports of all the financial transactions of the business. The accountant is the one in charge of accounting; he follows the principles and rules off accounting. Financial statements are made to present the true results of a business and its financial position in the industry (www.accountingcoach.com). The four most commonly used statements are balance sheet, income statement, statement of cash flows, and statement of changes in equity.

This assignment is about the fundamentals of accounting and its principles. It is to resolve the queries and confusions of the staff at Enfusiasm Limited regarding the understanding of financial statements. The basic important principles are discussed such as accruals & prepayments concept, balance sheet & income statement, and shares related information.

Current & Non-Current Assets

Both the current and non-current assets appear at the asset side of the balance sheet. As by name, current assets are one that have short maturities (one year or less) or are more liquid assets that are cash or easily convertible to cash. However, non-current assets are assets that are long term (more than a year) and are less liquid as compared to current assets. Current assets include, cash, short-term investments such as stocks or money market instruments and account receivables. Non-current assets include fixed assets such as machinery, inventory, notes receivables, and intangible assets. The worth of both current and non-current adds a value to the company. Both the assets are used for investment purpose by the business and are equal to the sum of the business's liabilities and ownership equity (accounting-simplified.com).

Non-Current Assets & Expenses

Assets are a part of balance sheet whether its current or non-current however; expenditures made on the long-term assets and revenues earned are a part of the income statement. A profit and loss statement calculates the profit of a business, which is given by the formula:

Profit = Revenue - Expenses

Hence, it is categorised under the income statement and not the balance sheet. Balance sheet of a company shows that it has to pay all the assets it has borrowed which is a liability or have it from shareholders that are equity given by an equation:

Assets = Liabilities + Owner's Equity

Accruals & Prepayments

While talking about accrual concept, business transactions are recorded when they actually take place not when the payments is made or received for that particular transaction. The financial statements are finalized under the concept of accruals. It is a simple concept that focuses on realizing income and expenses in the accounting periods to which they relate (accounting-simplified.com). When income earned by the business, it should be recorded in the same period and the company should not wait for the income ...