What is the objective of Financial Statements?
The basic objective of any financial statement is to fulfill information needs of the intended users. However, there are different kinds of financial statements for different purposes. Broadly we can divide the financial statements in two different types: General Purpose Financial Statements Special Purpose Financial Statements As said earlier that the basic objective of every […]
Why Financial Statements are prepared on Accrual basis?
Financial Statements assist internal and external users by providing them financial information which they in making economic decisions. As their decisions are based on financial information underlying financial statements therefore, decision making process depends heavily on the relevance and reliability of financial statements which in simple words mean that if financial statements are not reporting […]
What is the difference between Income Statement and Statement of Comprehensive Income?
Income Statement and Statement of Comprehensive are differentiated because IAS 1 gives two options to present the items of incomes and expenses recognized during the period. IAS 1 para 81 allows that all the items of income and expenses recognized in the period: EITHER in a single statement i.e. Statement of Comprehensive Income; OR in […]
What is Inventory?
Inventory is simply such asset that business has bought and holds with an intention to be sold in the normal course of the business i.e. it is the business of the entity to buy and sell such assets. The words stock, goods and inventory are used interchangeably and mean one and the same thing. Some […]
What is Folio coloumn and its use?
Folio, as in its literal meanings also, means a sequence of number of words for the purposes of dividing a book into meaningful parts or just for reference. Same goes for its use in accounting as well. Folio coloumn is used in Journals as well as in Ledgers. It usually contains the reference in forms […]
What are the Fundamental accounting Assumptions underlying Financial Statements?
Fundamental assumptions, basic assumptions or fundamental accounting assumptions mean the accounting concepts that have been considered and followed while recording financial information. As information needs are different from person to person, entity to entity and situation to situation thus such assumptions vary. But remember one thing fundamental accounting assumptions DOES NOT mean the rules that […]
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 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 […]
