Question

Please share two concepts learned in financial accounting, please give examples

Answer 1

1. ACCOUNTING EQUATION : There's a basic equation that serves as the foundation for double entry book keeping and accounting : Assets = liabilities + shareholder's equity .

The 3 components of this formula are,

Assets,including cash, accounts receivable and inventory.

Liabilities, include accounts payable and outstanding loans.

Shareholder's equity, including funds recieved from investors and earnings that have not yet been distributed to investors.

This equation teaches us that a company's assets will always equal the sum of its liabilities plus shareholder's equity in the case of a public company and owner's equity in case of non- public company.

2. GAAP: Generally accepted accounting principles(GAAP) are a common set of accounting principles that companies use to put together their financial statments. The idea behind the GAAP is to have a set of uniform, recognized standards that every company adherse to, regardless of industry or size.

Imposing GAAP on companies allows investors to benefit from a certain level of consistency When reviewing financial reports and compairing investment opportunities.