Accounting affects not only people in their personal lives but also very large businesses. It is also prudent to note that we all use accounting ideas when we plan what we are going to do with our money incomes.
Accounting income is therefore characterized with intensive planning process, where we have to explicitly know, how much of our incomes will go into savings and how much will be consumed, and it is against these backdrop that the concept of a budget emanates.
It is impossible to arrive at the accounting income without going through accounting equation. i.e. adding up what the accounting records say belongs to the business and deducting what they say the business owes. This gives us the accounting income which essentially shows what an individual or a business is worth according to those accounting records.
The accounting income therefore takes into account the fact that that no business will be set up to start trading in the absence of recourses which in most cases are supplied by the owner of the business.
Usually, it is not only then owner of the business supplying resources, but other people s well other than the owner. The amounts owing to these other people for their assets in the business is called liabilities
Accounting income , therefore can be called the owner 's equity or net worth, since it comprises of the funds invested in the business by the owner plus any profits retained for use in the business less any share of profit paid out of the business to the owner. The following is an illustration of a balance sheet.
Balance sheet as at
Fixed assets Capital
Free hold premises xx
Furniture and fittings xx Long Term, Liabilities xx
Motor Vans xx Loan for 5 Years xx
Trading Debtors xx
Trading stock xx
Cash at Bank xx
Short term Liabilities
Trading Debtors xx
Short term Loans xx
Institution of all kinds prepare income statements even governments of Government bodies ...
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(The Economic and Accounting Concepts of Income Essay)
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