Merchant Cash Advance
The commercial banking system has undergone a high deal of innovation in the past few years. A lot of new commercial lending products have been introduced in order to help business manage their finances better. A merchant cash advance is an example of one such innovative credit product introduced by the banks. In this article, […]
Types of Market Participants in Forex Market
The $4 trillion dollar Forex market witnesses a lot of market participants. However, all of these participants have different motives. An understanding of these motives is required to predict their behavior in the markets. Also, some of these participants have deeper pockets, better information and are more active than the others. Therefore, any student of […]
Variations in Cash Flow Models
We are now aware of how to use the basic single stage models for both free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). It is now time to look into more advanced models which involve two or more stages for which cash flows will be predicted. Now, we need […]
Essential Vs Non-Essential Retail
The retail sector is often considered to be a part of a single industry that has similar characteristics. However, this is not necessarily the case. It needs to be understood that the retail sector is very diverse. There are many different types of businesses which operate in this sector. These businesses have considerably different characteristics. […]
Functions of a Central Bank in Modern Economies
A central bank is an institution that is mandated by constitutional decree to function along certain principles and entrusted with managing the fiscal side of the country’s economy. The Fed Reserve and Bank of England are examples of central banks. These banks have many functions, some of which are listed below. The central bank manages […]
The entity concept is one of the central tenets of accounting. An understanding of the same is therefore of paramount importance to students. However, the entity concept came as a solution to a problem faced by earlier accountants. To understand the benefits of the solution provided, we must look at the problem first.
In reality a business is just another aspect of a person’s life. When many people get together and start a business, it is their collective effort. However, this can cause confusion for the accountants. Imagine accounting for personal and business expenses together. The accountants would never be able to come to an accurate picture of profits.
To solve this problem, accountants created the entity concept. This was the separation of personal and professional concerns of the entrepreneur. For the purpose of accounting, the business is considered to be an entity which is independent and separate from its entrepreneur.
The separation of concerns in accounting is irrespective of the legal status of the organization. In real life, some forms of organizations like private limited and public limited companies are considered to be separate entities whereas other forms like partnerships and sole proprietorships are considered to be part of the owner’s entity. Accounting does not make this distinction.
The entity concept may seem to be a frivolous and obvious assumption of accounting. However, the implications that thus assumption creates is both start and counterintuitive. Here is a look at the implications.
The entity concept considers the company separate from its owners. Thus, capital is money that owners have lent to the company. This is why it appears on the liabilities side of the company’s financial statements. If you prepare the owners personal financial statements, the same capital will appear as his asset.
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An Overview of Contracts and Why They are Important to Business and Society
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