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Essential Accounting Computations

Knowledge of accounts can make life much easy. If you are to invest in a new business, joining your family business, looking for an accounting job, or if you manage your own assets and liabilities, knowing some accounting computations becomes mandatory. There are 4 document types that show accounting computation. Balance sheet - reports on a company's assets, liabilities, and equity as of a given point in time. This document uses most basic accounting computation (Assets − Liabilities = Equity). This can be written differently to emphasize different aspects, like (Assets = Equity + Liabilities) or (Assets − Equity = Liabilities) Income Statement - shows the figures of a company's income, expenses, and profits over a period of time. It’s also referred to as a Profit and Loss Statement. Statement of retained earnings - shows any changes in a company's net earnings over a given period. Statement of cash flow - reports on a company's transactions of money for operating, investing and financing activities. To effectively use accounting computations, there are several key terms that one needs to be familiar with. Equity is value or worth, positive or negative. Liability is something owed. And an asset is something of use or positive value. 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, Fixed, and Intangible. 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 significance. 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 - Current and Long Term 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. Long Term Liabilities- those debts that can be repaid at ease, usually in payments. Payments are generally made over serval months or years. 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. Second, it works as a settled medium or mode, like gold for the standard of deferred payment. Third, the unit 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 etc. 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. These are some of the broad guidelines that will help you grasp the basics of accounting computation. It is essential to have accounting knowledge to accurately portray the company's financial position with business accounting. This is just a start to the world of accounting information to properly calculate personal finances or operate a business. About the author: Mansi Gupta writes for Assets and Liabilities Book. He has written many articles about accounting, but is not a certified public accountant and any laws or procedures referenced should be verified with a tax professional before they are used. Circulated by Web Shepherd