Question

What are assets, liabilities, and new worth/net assets and Do GAAP have a preference between cash and accrual bases of accounting? Explain.

Answer 1

Assets - A tangible or intangible thing that is controlled or owned by the enterprise and that bring the future economic benefit to the organisation and can be measured reliably at cost.It is resource that is used by the business enterprises.Assets are of two types Tangible asset and Intangible assets.Asset are classified as current asset or non current asset

Liabilities-These are the financial obligations that the company is required to pay at some point of time.Liabilities are classified as current liability or non current liabilities.Liabilities are the debts that the company owe.

Net worth / Net Assets : Net worth is the value of the business.The difference between asset and liability is net asset.Positive Net worth means that assets are greater than liabilities and negative Net worth means liabilities are larger than assets.Net worth tells about the financial position or financial health of the business.

Yes GAAP have a preference between cash and accrual bases of accounting .It empowers on accural bases of accounting.Accrual bases provides a better position of company in terms of managing revenue ,expense,asset and liability than the cash basis.Accrual concept is based on time while cash bases is not based on time.