Understanding Company Assets, Liabilities, and Accounting
The assets and means that a company uses to perform its activity, i.e. to operate, are the heritage of the company.
If we consider the value of each of the elements of heritage and add them, we will have a number that represents the value of heritage.
- The goods are the material means necessary for the company’s business: buildings, machines, money.
- The rights are those effects that the company can claim: sales invoices unpaid by customers, etc.
- The obligations are the debts that the company has with other people: shopping bills owed to suppliers.
The estate is determined by adding the property and rights and subtracting liabilities.
Heritage = (Real + Rights) – (Debt)
Inventory is the detailed list of the assets and liabilities, classified into property, rights, and obligations and valued in one unit of account.
A common dictionary is used to describe and group the different elements of the heritage.
- The asset consists of property owned by the company and rights in their favor.
- The liability consists of the obligations the company must address.
- The net captures what we have hitherto called the value of heritage and represents funds that the employer has provided the company.
Accounting deals with the assets and liabilities and its main purpose is to investigate the information processing and recording of data related to heritage.
Understanding Accounts
The account method or state is a representation of an asset or liability, which expresses its value and is recorded on a dual.
Each account has a title that matches the name of the heritage items collected. Therefore, the account represents a particular group of assets and liabilities.
The account is a dual registration divided into two parts, one designed to gather the increases in value of assets and liabilities and the other decreases. One of these parts is called “debit” and the other “credit”. The portion on the left corresponds to the debit and the right to the credit.
- Active accounts are those that represent the assets and liabilities of assets, i.e. property and rights.
- Accounts liabilities are those that represent the assets of liabilities, i.e., obligations.
- Net accounts represent the net assets and liabilities, i.e., funds provided by the employer.
Recording in Asset Accounts
- On the debit side:
- The initial value of the element
- Increases the value
- The entry of new elements
- On the credit side:
- The value decreases
- The output of elements
Recording in Liability and Net Accounts
- On the debit side:
- The declines in value
- The outputs of elements
- On the credit side:
- The initial value of the element
- Increases in value
- The entry of new elements
Account Balances
The value of the item or assets that are recorded in an account is indicated by the balance of it. When this value is required to know, it is the account balance.
For the balance, add the amounts entered on the debit side by side, and the amounts entered on the credit side, on the other, and subtract the sum of the other, the resulting quantity is the account balance.
Balance = debit amounts – amounts of credit
When we get the account balance:
- If the debit amounts are greater than the sums of having, said that the account has a debit balance.
- If there are greater amounts of the debits, the account has a credit balance.
- If the amounts of debits are equal to the amount of credit, the account has a zero balance, i.e. the canceled or repaid.
Make a charge or a debit is made an entry in the debit account. Make a payment or credit is to make a notation on the credit of an account.
The asset accounts normally have a debit balance or zero.
The liability accounts (net obligations) typically have a credit balance or zero.
Double-Entry Bookkeeping and Financial Books
Double-entry bookkeeping is the method or system for recording transactions in the accounts most widely used.
There is no debtor without a creditor, or creditor without a debtor.
The financial books are the different records that accounting uses to organize the proper treatment of data and information.
The most basic accounting books are:
- The Journal
- The Ledger
- The Inventory and Annual Accounts
The Commercial Code
The Commercial Code states: Every employer shall keep proper accounts, appropriate to the activity of your company, enabling chronological track of all its operations, and preparing periodic reports and inventories.
Necessarily take, without prejudice to the provisions in laws or special provisions, a book of inventories and accounts, and a journal.
Businesses that are corporations must also keep a book of Acts.
The tax rules may also force other companies to keep books and records for record book purchases and expenses and sales and revenue and invoices issued and released.
The Commercial Code provides that the books that employers are required to keep should be legalized.
The Journal and the Ledger
The journal is the book for the daily record of all transactions relating to the business of the company, while also allowing the entry register of the total joint operations for periods of time not to exceed a month.
The entries in the books of accounts are called seats. The seats (annotations) should be performed in order of dates.
The ledger is the book that presents in an orderly manner all accounts maintained in the company.
The streak is the most appropriate track for the accounts in business.
Financial Years and Inventory
In business, it is customary to divide the economy into periods of time, usually a year. These periods of time that divide the company’s business are referred to as the company’s financial years and identify with the year to which they relate.
The book inventories and annual accounts is a book that collects one part inventories and balances that are made by another company and annual accounts are statements that are made at the end of the fiscal year to report the situation of the company and the result of activities in the year.
The book opens with a detailed initial balance of the company and rewritten at least quarterly with the balance sheet amounts and balances of all checking accounts.
At the end of each year is also recorded in this book the year-end inventory and annual accounts.
Annual Accounts
The annual accounts comprise five documents:
- The balance sheet
- The profit and loss account
- Statement of changes in equity
- Cash flow statements
- Memory
The General Accounting Plan
The general accounting plan is a provision that establishes the basic technical framework for accounting standards in Spain. Its aim is to ensure that the accounting information of companies is transparent, reliable, and comparable.