Accounting Theory

Accounting
Theory
Important Concepts:
Concept: Explanation: Examples:
Gives the net worth of the
business (how much the
business is worth after all
Owner’s Equity  Capital
the assets and liabilities
have been taken into
account)
Possessions of a business  Land
Tangible/Fixed that are intended to be  Buildings
Assets kept for a time period  Vehicles
longer than 12 moths  Equipment
Assets owned by the
 Fixed Deposits
Financial Assets business that should
 Share
hopefully bring income
 Trading
Possessions of a business
inventory (stock
that are intended to be
Current Assets or goods)
kept for a time period
 Trade and other
shorter than 12 moths
receivables


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, (debtors)
 Cash (cash float;
petty cash or
cash in the
businesses bank
account
The debt that a business  Creditors
Liabilities has incurred and is  Term Loans
therefore liable to repay  Mortgage Bonds
 Current Income
(from services
rendered)
 Rental Income
When a business receives
 Discount
Income money for services
Received
rendered or goods sold
 Profit
 Interest Income
 Commission
Received
 Rental Expense
 Water &
Electricity
 Wages
The money paid for a
 Stationery
Expenses service rendered to the
 Insurance
business
 Telephone
 Salaries
 Advertising
 Repairs
When the owner of a
business withdraws funds
Drawings or assets, it will reduce the
owner’s share in the
business
Money or assets given by
Capital the owner, in order to
start a business
Increase the owner’s
Profits
interest in the business


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