This is especially easy to understand when a computer scientist is dealing with accounting software program without recognizing the essentials of accounting for developers.

What is accountancy?

Bookkeeping is a science that examines the recording of financial deals in the bookkeeping publications, the group of purchases in the General Journal accounts, with the purpose of producing the economic statements ( annual report, income statement) which scrupulously stand for the financial situation of the business at a given day. An extra web page to the economic statements, called the Auditor’s Record, states, if existing, that the economic declarations accurately stand for the economic placement of the firm at a given day. If this report is not present, beware of the value of financial declarations.

Accounting concepts

The method of executing accountancy is mounted by principles called ” Frequently recognized bookkeeping principles” (GAAP). These concepts relate to capitalisms (i.e. not detailed on the stock exchange) as well as a certain right of adaptation of bookkeeping concepts has been established according to specific conditions. On the other hand, in the case of noted companies, new criteria called “International Coverage Standards” (IFRS) come into force on January 1, 2011, for countries that have chosen to take on these criteria, i.e. greater than ‘a hundred countries, consisting of Canada, the European Union, Japan. These standards need to undertake modifications in 2012, 2013, 2014 to bring them closer to the requirements active in the United States which have actually not yet embraced IFRS requirements, regarding their current criteria a lot more valid. The new criteria have the vital characteristics of leaving more space for concepts and less area for policies (eg enforcing a chart of accounts for a classification of business). Raising the adaptability of the accountant in the exercise of his professional judgment, at the level of the application of the principles, will certainly permit the monetary declarations to mirror even more scrupulously the actual financial scenario of the company yet can additionally promote the control having contrary effects. In accordance with the audit principle of going concerned, the monetary statements for 2010 have to exist according to the new requirements to permit comparison between 2011 and 2010. These brand-new requirements will promote the flexibility of accountants all over the world.

The accountancy concepts described below relate to GAAP.

Audit concept of business character

To effectively execute and also understand a business’s accountancy, one should see business as a various person from its owner, even though legitimately the business as well as its proprietor may coincide individual. As an example, a single owner might have a service selling computer system devices. In this instance, the revenue of business is legitimately the earnings of the owner as well as the financial debts of business are legally the debts of the proprietor.

From an accounting viewpoint, you shouldn’t look at it that way.

The objective of bookkeeping is to generate financial statements (balance sheet as well as earnings declaration) which scrupulously stand for the financial scenario of the business for decision-making functions.

As an example, if the same proprietor likewise possesses a footwear repair shop, he also has other income, costs, debts, etc

. It is obvious that, for the purpose of decision-making in each company, we have to not blend the incomes of one and the other, the expenditures, the financial debts. What is more, business expenses ought to not be combined with personal expenditures, etc

. This is why, under the accountancy principle of the individuality of the firm, a firm is acknowledged as an accountant different from one more accounting firm and various from its proprietor.

It complies with that the earnings statement of the computer system tools sales business contains the earnings ( revenue) of the computer equipment sales organization, much less the charges ( costs) of the computer system devices sales service. ‘ computer system tools utilized to earn these items; the web revenue (income – expenditure) of the revenue declaration for that reason stands for the profit of the business from the sale of computer tools just.

The annual report of the computer equipment sales business stands for the properties of the computer system equipment sales company and states who brought the money to get these properties; as an example, stock ( possession) is funded by a debt (liability) which is the account payable to the vendor; the land (asset) is funded by the deposit from the single owner ( resources); if the business is a company, we can say that the land is funded by the capital of the investors ( investors’ equity). Resources and also Investors’ equity are identical. So the accountancy equation ought to constantly be examined: property = responsibility + resources.

A company is an accountant that, nevertheless, is unworthy a lot, no greater than a sparrow called “Les arpents vert inc.”. This sparrow perched on an electric cable has, under its left-wing, the properties that evaluate as much as there is under its right-wing, ( responsibilities + resources). If the sparrow offers all of its assets, it has the cash to settle its debts and also remit the owner’s down payment. Subsequently, the only wealth of the sparrow is “the sparrow”, an accountant that calls himself “Les arpents vert inc.”. All accounting transactions ought to be accounted for from the point of view of the “sparrow” and also not the owner.

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