Hasaan Fazal
What is the difference between revenue, income, profit, gain and return?
Every student who starts accounting and get an idea of these terms, the instinct of differentiating kicks in and he/she starts looking for the differences among these terms. Though there are sometimes minor and sometimes major differences among these terms but these days, with an exception of few, these terms are used interchangeably. For example, […]
What is the purpose of Statement of changes in equity?
Many students find it confusing that if we already have two financial statements, one covering the financial position of the business and the other telling about the financial performance then why do we need yet another statement with the name of Statement of Changes in Equity? And more interestingly, many think that its just a […]
What is the objective of an assurance engagement?
Well objective of every assurance engagement can be understood if we understand the elements of an assurance engagement. So let’s first of all understand the connection between three parties and what each do. Stakeholders like owner, employees, creditors, lenders and many other need financial information regarding financial performance and financial position of the business for […]
What is Inherent risk?
Inherent risk has been defined in the standards as follows: The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls. Simply put, management make assertions in financial statements which might […]
What is the difference between ‘separate entity’ and ‘separate legal entity’?
Separate entity is basically an accounting concept where as separate legal entity is a legal concept which overrules the accounting concept of separate entity. According to separate entity concept (also termed as business entity concept) the business and the owner(s) of the business are two distinct and separate entities which implies that assets and liabilities […]
What is business entity concept?
Business entity concept or Separate entity concept or Separate economic entity concept are different names for the same concept. According to business entity concept, the business is distinct and separate from its owners i.e. business and its owners should not be treated as one and the same thing. Accepting this concept means that the activities […]
Is there any case in which Liability increases and decreases as well?
In one single transaction there are absolutely NO chances that liability increases and also decreases at the same time. And even for the sake of argument we consider that yes it will increase and decrease then the increase and decrease will be equal thus making no difference at all. However, if the question was asked […]
Why closing inventory appears on the credit side of Trading account?
Closing stock or as it is also named as closing inventory is definitely an asset. But trading account is not the same as Inventory account. Inventory, being an asset, should have a debit balance in Inventory account. Trading account is a distinct account and both must not be mixed up together. The answer to the […]
What is the difference between Exceptional item and Extraordinary item?
So far International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) have not defined such terminologies. However, apparently these terms seem to have different treatments according to accounting standards especially IAS 1 in which extraordinary items and material items (also referred as exceptional items) have been discussed separately under different paragraphs. These terms are […]
What is meant by ‘line item’ in accounting standards?
Term line item basically refers to such piece of information which has its own weight and should be presented on a separate line on any document. In context of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) line items simply means a category on the face of financial statements and in the notes […]