Ordinary Annuity vs. Annuity Due
Annuities can be divided into two types based on the exact time when the payments occur in a given period. The payments could either occur at the beginning of every period or the payments could occur at the end of every period. For instance when you take a house on rent, the rent is usually […]
Retail Inventory Method (RIM)
Inventory is a very important part of the retail business. This is because the stock which retail stores hold on their books is their most important asset. The quality of this asset allows them to generate higher profits as compared to their peers. Hence, the valuation of inventory which is held by the retailer is […]
Interbank Lending Markets and Repurchase Agreements
Banks have to lend money in accordance with the amount of reserves that they have on hand. However, there is no way of finding out the exact amount of loans that a bank can give out while still complying with the reserve requirements because taking deposits and making loans happen simultaneously. Therefore, it is impossible […]
Understanding Tax Terminology: Tax Rates
In the previous article, we discussed about how tax base calculations work. However, tax base calculations are just one part of the story. The other part of the calculation is the tax rate. Tax base and tax rate are multiplied to arrive at the tax amount owed by the organization. In this article, we will […]
Pros and Cons of Neo Banks
In the previous article, we have already discussed what neo banks are. We now know the business model of neo banks. We are also aware of the various characteristic features of neo banks. It is important to note that a significant number of business organizations in Europe have already started migrating their banking needs to […]
The entity concept separates the concerns of the owners from the business. An extension of the same concept is the concept of accounts which splits up the business’s affairs further. The account concept becomes clearer once the double entry system of accounting is explained. That is done at a later stage in the tutorial.
The firm conducts transactions with outside parties and the accounting system is capable of keeping a track of the same. However there are many transaction that are internal to the firm. For instance when a company undertakes production, it converts raw material into finished products. This transaction is internal to the firm but has a material effect. If the firm were considered as one unit, it would be impossible to account for the transaction as the same party cannot be on both sides of the transaction.
An appropriate analogy to draw would be that of the human body. The business is the complete entity i.e. the body. Accounts on the other hand are like lungs, kidneys, heart etc. They are like the vital organs that are constituent parts of the entity. They have their own independent existence. However, it is the relationship between these accounts that is of prime importance. That is why it is called the accounting system.
All accounts within the organization can be split into three types. An account can be of one and only one of the following type and not more. Here are the various types of accounts.
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An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
