Accounting For Equity or Liability

Why accounting for equity or liability has become more and more complex?

Expert Solution

Reasons why accounting for equity or liability has become more complex:

Assets are listed by their liquidity or how soon they could be converted into cash. However, liabilities are sorted by how soon they are to be paid i.e current or non current.
Balance sheet critics point out its use of book values versus market values, which can under or over inflate.Therefore, it is difficult to value actual market value of liabilities or equites.
The Shareholders' Equity part of the equation is more complex than simply being the amount paid to the company by investors. It is actually their initial investment, plus any subsequent gains, minus any subsequent losses, minus any dividends or other withdrawals paid to the investors.
Both liabilities and shareholders' equity represent how the assets of a company are financed.
the accounting equation doesn't provide investors information as to how well a company is performing
it requires various analyzing tools and ratios to correctly account equity and liability .

The critical points are listen in explanation

Professor Nabeel answered 2 years ago

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