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Introduction to Business Accounting - Essay Example

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Introduction to Business Accounting

While the ‘as at’ financial position is presented in the Balance Sheet (Statement of Financial Position), a detailed presentation in terms of Revenue generated against the expenditures incurred in that accounting period is depicted by the Income Statement (Statement of Comprehensive Income) (Vickerstaff & Johal, 2012).The Statement of Financial Position:
Also commonly known as the Balance Sheet, the Statement of Financial Position reflects as to what is owned by the entity as ‘Assets’ or ‘Resource’ as opposed to what it owes to third parties as ‘Liabilities’ or ‘Payables’ at that point in time. It also represents Shareholders’ equity, which is sometimes referred to as Capital, which represents the resources that would remain if a company disposes all of its assets and settles all of its liabilities (Wood & Sangster, 2005). Some liabilities are to be settled within the near future (next 12 months) hence, are classified as ‘Current Liabilities’ while others with longer period of settlement are known as Non-current or ‘Long term Debts’.
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It also represents Shareholders’ equity, which is sometimes referred to as Capital, which represents the resources that would remain if a company disposes all of its assets and settles all of its liabilities (Wood & Sangster, 2005). Some liabilities are to be settled within the near future (next 12 months) hence, are classified as ‘Current Liabilities’ while others with longer period of settlement are known as Non-current or ‘Long term Debts’. Similarly, some Assets have a life shorter than of 12 months and are likely to be fully utilized in the company’s operations during this time so are classified as ‘Current Assets’; whilst ‘Non-Current’ or ‘Fixed Assets’ are those that have longer lives and are thus utilized partly in one particular tenure. This utilization is charged as a periodic ‘Expense’ known as ‘Depreciation’ which later adds as a component to the Income Statement (Ferraino, 2011). The Income Statement: Also known as the Statement of Comprehensive Income, the Income Statement in broader terms is a portrayal of how much a company has earned against how much costs it has incurred in order to generate those earnings, eventually formulating the company’s profitability for that particular accounting period. While direct operational costs are incorporated as Cost of Sales, other incurred expenses such as Depreciation, Interest, Administration, Taxation, Distribution or Marketing are charged in individual ‘heads’, finally leading to the net Profit For the Year. (Wood & Sangster, 2008) Any other unusual or non-operational income can be classified separately under ‘Other Comprehensive Income’, for example income from a Litigation or Gain (or Loss) on disposal of ...Show more

Summary

Two integral components of these Financial Statements, crucial for the purpose of decision making and strategy formulation of the company, are the Statement of Financial Position and the Income Statement…
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