D iscipline : Basis of accounting Theme 2 : T he object and method of accounting

1. Discipline: Basis of accountingTheme 2: The object and method of accounting Lecturer: Vornicova Natalia, Master of Economic Sciences Chisinau 2019

2. Accounting is fundamentally about Assets, Liabilities and Equity.Assets = Liabilities + Equity

3. Assets are anything of value that is owned by a company, whether fully paid for or not.

4. Asset is any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples: cash, securities, accounts receivable, inventory, office equipment, real estate, car, and other property.

5. In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

6. Equity is the value of an ownership interest in property, including shareholders' equity in a business.

7. A balance sheet also known as the statement of financial position tells about the assets, liabilities and equity of a business at a specific point of time. It is a snapshot of a business. Assets = Liabilities + Equity

8. A balance sheet is named so because it lists all resources owned by the company and shows that it is equal to the sum of all liabilities and the equity balance.

9. An account form balance sheet is just like a T-account listing assets on the left side and equity and liabilities on the right side. A report form balance sheet lists assets followed by liabilities and equity in vertical format.

11. Enterprise asset structure:

12. Enterprise long-term asset structure:

13. Fixed assets also known as hard assets, fixed assets include real estate, physical plants and facilities, equipment (from office equipment to heavy operating machinery), vehicles, and other assets that can reasonably be assumed to have a life expectancy of several years.

14. Most fixed assets, with the notable exception of real estate, will lose value over time. This is known as depreciation, and is typically figured into a business's various financial documents.

15. Fixed assets are among the most important assets that a company holds, for they represent major investments of financial resources. Indeed, fixed assets usually comprise the majority of a business's total assets.

16. Fixed assets are also very important to small business owners because they are one of the things that are examined most closely by prospective lenders. When a bank or other lending institution is approached by a business owner who is seeking a loan to establish or expand a company, loaning agents will always undertake a close study of the prospective borrower's hard assets. Bankers view these fixed assets as a decisive indicator of a business's financial health.

17. Current assets also known as soft or liquid assets, current assets include cash, government securities, marketable securities, notes receivable, accounts receivable, inventories, materials and any other item that could be converted to cash in the normal course of business within one year.

18. Some current assets (or short term assets): • Inventory; • Receivables; • Cash; • Other current assets.

19. Cash is, of course, the most liquid of assets. But in business circles, the definition of cash is expanded beyond currency (coins and paper money) to include checks and money orders; the balance in current account; and even less liquid assets that are commonly regarded as cash equivalents. These include certificates of deposit with maturities of less than a year and Treasury bills.

20. A liability is a debt assumed by a business entity as a result of its borrowing activities or other fiscal obligations. Liabilities are paid off under either short-term or long-term arrangements. The amount of time to pay off the liability is typically determined by the size of the debt; large amounts of money usually are borrowed under long-term plans.

21. Payment of a liability generally involves payment of the total sum of the amount borrowed and the interest.

22. Current liabilities are short-term financial obligations that are paid off within one year or one current operating cycle, whichever is longer (a normal operating cycle, while it varies from industry to industry, is the time from a company's initial investment in inventory to the time of collection of cash from sales of that inventory or of products created from that inventory).

23. Typical current liabilities include such accrued expenses as: • wages, • taxes, • interest payments not yet paid;  • accounts payable; • cash dividends; • revenues collected in advance of actual delivery of goods or services.

24. Long-term liabilities are not paid off within a year, or within a business's operating cycle, are known as long-term or noncurrent liabilities. Such liabilities often involve large sums of money necessary to undertake opening of a business, major expansion of a business, replace assets. Such debt typically requires a longer period of time to pay off.

25. When debt that has been classified as long-term is paid off within the next year, the amount of that paid-off liability should be reported by the company as a current liability in order to reflect the expected drain on current assets.

26. Thanks for attention!