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 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 […]
How POSSESSION and CONTROL of an asset are different in financial acconuting?
Possession of an asset might mean just having a physical control of the asset. The party who holds the asset is the possessor of such asset. But the word control holds special meaning in the business world. Especially in financial accounting. And understanding the meaning of control and ability to differentiate between the possession and […]
Why capital account is not debited to record drawings?
When owner of the business withdraw funds or goods from the business, we do not debit capital account instead we open record these withdrawals in another account which is usually named as Drawings account. So, we record such transactions without disturbing capital account in drawings account. Drawings account is also a capital account as this […]
What is nominal ledger?
First of all students must not confuse the accounts with ledgers. These are two totally different things. Even though these terms are loosely used for each other but they are certainly not the same. Ledgers can be regarded as big registers where we write up and update different accounts. So, it means accounts are specific […]
Why do we add back depreciation and interest income / expense in cash flow statements?
The answer to this question is hidden right in the word “indirect method”. When we prepare statement of cash flows using indirect method we have to use income statement to find out the cash flows indirectly from it. Now, we can understand that the basic purpose of Income statement or Trading and Profit & Loss […]
What is the difference between “Selling costs” and “Cost of Sales”?
“Cost of sales” if said in a phrase then it basically is, manufacturing cost of units sold in a particular period or simply cost. On the other hand “selling costs” include such costs that are incurred to make things available for sale. Important thing to understand here is that even after incurring cost of sales, […]
