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Financial accounting is the process of recording, classifying and summarising business transactions in monetary terms and preparing financial statements to report the results and financial position of the business.
[\text{Assets} = \text{Liabilities} + \text{Capital}]
An asset is a resource owned or controlled by the business that is expected to provide future economic benefit, such as cash, inventory, or machinery.
A liability is a present obligation of the business to pay outsiders, arising from past transactions, such as creditors, outstanding expenses, or loans payable.
Drawings are the amount of cash, goods or other assets withdrawn by the owner from the business for personal use, which reduces the owner’s capital.
The going concern concept assumes that the business will continue its operations for the foreseeable future and will not be liquidated in the near term.
Financial accounting has the following objectives:
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