An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
The concept of in-store automation is increasingly becoming popular in the retail sector. In the previous articles, we have already seen what in store automation is. We are now also aware of the various advantages which result from in store automation. However, it would be incorrect to assume that in store automation does not have […]
In the previous article, we have already understood the concept of shrinkage. We now know how shrinkage is calculated and are also aware of the financial impact that it has on retailers. It is a known fact that shrinkage cannot be reduced to zero. It has to be brought under control. Retailers have been streamlining […]
In the previous articles, we have already seen that sporting franchises are required to raise a lot of capital at regular intervals. Hence, they are required to regularly raise debt from the marketplace. However, it is important to note that the decision regarding how much debt can be raised by a sporting franchise is not […]
In the previous article, we have already studied about option pools. We now know the various advantages that they offer and why they are preferred by startup companies as a means to compensate their employees. However, some companies and investors are not happy with the concept of stock option pools. This is because they dilute […]
The past few years have witnessed the rise of online retail. As a result, there has been a persistent debate about whether or not brick-and-mortar stores have outlived their utility. There are many critics who believe that this may not be the case. Even though online retail has significant advantages, it still lags behind traditional […]
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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