Accounting Terms EGGS-posed
So, I have here a book on Financial Basics by Schmidgall, Hanes and Ninemeier. Whenever I’m talking about Accounting 101, my main reference is this book. Let’s see how we can we make the most of this book cover to cover. Since we are in the verge to study everything from scratch, it will be most EGG-citing if we will study and EGGs-pose the basic Accounting terms:
Business Entity: “EGGINC”
EggInc as a business entity should be treated as separate entity from its owners. As it generates a separate revenue, incurs separate expenses by using its own “ASSETS”, and it also makes profit, or might suffer loss, or even reach a “break-even” state as it reaches a certain span of time.
EggInc shall have obligations owed by EggInc as a separate entity which is termed as “LIABILITY”. It may be owed to a vendor of eggs for example, or butter for production of EggInc’s desserts or owed to its employees after one (1) month’s working hours.
Historical Cost
- Is the value of EggInc’s asset is its agreed upon cash equivalent but the price paid reflects its “current fair value” because over time, the value may increase or decrease depending on the entity. For example, a land value bought where EggInc will rise on year 2019 might be different land value from year 2021. For example at the time of purchase, the cost of land is 5,000,000.00 pesos is equal to fair value. Two (2) years later the current fair value may be 6,000,000.00 pesos, yet the financial statements would reflect the historical cost of 5,000,000.00 pesos.
Going Concern
- Are certain liabilities that would be due immediately in case EggInc will cease operation, likewise, these are also assets that might need to be sold at a considerable loss. If in case, EggInc will still continue, there is no need for EggInc’s Accountant to write down assets to a liquidation value or to reclassify long-term liabilities as being due immediately.
Periodicity
- EggInc’s Accounting statements Income statements should be developed periodically to monitor EggInc’s financial condition. Owners of EggInc monthly statements are also desired to monitor economic health, while annual reports should also be maintained annually for the requirements of Tax authorities.
Expenses matched to revenues
- Expenses of EggInc incurred must also match with deductibles of EggInc.
Conservatism
- This guides the Accountant of EggInc in case confronted with alternate measurements to select the option that will yield the favorable impact on EggInc’s profitability and financial position within current accounting period through financial records.
Consistency
- The collection of EggInc’s accounting information should be done consistently each fiscal period to have an accurate information.
Materiality and Practicality
- Significant financial events impacts the financial viability or long-term operation of EggInc. Experience and Judgement are necessary to determine whether it is practical to report “minor” financial events related to confidential information.
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