2. ASSET
In financial accounting, an asset is an economic
resource. Anything tangible or intangible that is
capable of being owned or controlled to produce value
and that is held to have positive economic value is
considered an asset. Simply stated, assets represent
value of ownership that can be converted into cash
(although cash itself is also considered an asset).
Simply put, "an asset is something that puts money in
your pocket".
3. the balance sheet of a firm records the monetary
value of the assets owned by the firm. it is money and
other valuables belonging to an individual or business.
two major asset classes are tangible assets and
intangible assets. tangible assets contain various
subclasses, including current assets and fixed assets.
current assets include inventory, while fixed assets
include such items as buildings and equipment.
intangible assets are nonphysical resources and rights
that have a value to the firm because they give the
firm some kind of advantage in the market place.
examples
of
intangible
assets
are
goodwill, copyrights, trademarks, patents and
computer programs
4. READING THE BALANCE SHEET
A balance sheet, also known as a "statement of financial
position," reveals a company's assets, liabilities and owners'
equity (net worth).
How the Balance Sheet Works
The balance sheet is divided into two parts that, based on
the following equation, must equal each other, or balance
each other out. The main formula behind balance sheets is:
Assets = Liabilities + Shareholders' Equity
This means that assets, or the means used to operate the
company, are balanced by a company's financial
obligations, along with the equity investment brought into
the company and its retained earnings.
5. ACCOUNTS RECEIVABLE
Accounts receivable represents money owed by entities
to the firm on the sale of products or services on
credit. In most business entities, accounts receivable is
typically executed by generating an invoice and either
mailing or electronically delivering it to the
customer, who, in turn, must pay it within an
established timeframe, called credit terms or payment
terms.
Bookkeeping
To record a journal entry for a sale on account, one
must debit a receivable and credit a revenue account.
When the customer pays off their accounts, one debits
cash and credits the receivable in the journal entry.
6. INVENTORY DEFINITION
Inventories consist of raw material, work-in-process and finished
goods which are held by a business in ordinary course of
business, either for sale or for the purpose of using them in the
process of producing goods and services.
Types of Inventory
Raw material is a type of inventory which acts as the basic
constituent of a product.
Work-In-Process. this means that work-in-process inventory is in
the middle of production stage and it is partly complete.
Finished Goods. is a type of inventory which comes into
existence after the production process in complete. Finished
goods is ready for sale inventory.
7. Inventory Valuation Methods Introduction
Inventory valuation methods are used to calculate the cost of
goods sold and cost of ending inventory.
First-in-First-Out Method (FIFO): According to FIFO, it is
assumed that items from the inventory are sold in the order
in which they are purchased or produced.
Last-in-First-Out Method (LIFO):Here it is assumed that
newer inventory is sold first and older remains in inventory.
Average Cost Method (AVCO): weighted average cost per
unit is calculated for the entire inventory on hand which is
used to record cost of goods sold.
8. FIXED ASSET
Fixed assets, also known as a non-current asset or as
property, plant, and equipment (PP&E), is a term used
in accounting for assets and property that cannot easily
be converted into cash. In most cases, only tangible
assets are referred to as fixed. International
Accounting Standard (IAS) 16, defines Fixed Assets as
assets whose future economic benefit is probable to
flow into the entity, whose cost can be measured
reliably.
Fixed assets are those such as land, machines, office
equipment, buildings, patents, trademarks, copyrights,
etc. held for the purpose of production of goods or
rendering of services and are not held for the purpose
of sale in the ordinary course of business.
9. WHAT IS DEPRECIATION?
Depreciation is the process by which a company
allocates an asset's cost over the duration of its useful
life. Each time a company prepares its financial
statements, it records a depreciation expense to
allocate
a
portion
of
the
cost
of
the
buildings, machines or equipment it has purchased to
the current fiscal year. The purpose of recording
depreciation as an expense is to spread the initial
price of the asset over its useful life. For intangible
assets - such as brands and intellectual property - this
process of allocating costs over time is called
amortization. For natural resources - such as
minerals, timber and oil reserves - it's called depletion
