Money Market Futures – Meaning and Types
The money market is a full-fledged financial market. Hence, there are many investors who are keen to hedge the risks which emanate from the money market. The need to hedge these risks has led to the creation of several money market derivatives. There are certain exchange-traded derivatives that are a part of the money market […]
Techniques Used in Ratio Analysis
Ratio, as the name suggests, is nothing more than one number divided by the other. However, they become useful when they are put in some sort of context. This means that when an analysts looks at the number resulting out of a ratio calculation he/she must have a reasonable basis to compare it with. Only […]
Portfolio Management – Meaning and Important Concepts
It is essential for individuals to invest wisely for the rainy days and to make their future secure. What is a Portfolio ? A portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds, cash and so on depending on the investor’s income, budget and convenient time frame. Following are […]
The Pitfalls of Quarterly Capitalism
Creating the maximum possible shareholder value had always been the cornerstone of capitalism. All economic theories had always been aimed at maximizing long term shareholder value. However, in the late 90s and early 2000’s, this situation changed rapidly. Instead of reporting annually, companies had to report their profits or losses on a quarterly basis. It […]
History of the Forex Market: The Gold Standard
The word “money” has not always meant what it means today. Today when we use the word “money” we refer to “currency”. Both, money as well as currency used to mean very different things until about a couple of centuries ago. Prior to the monetary system that we have today, the world was on a […]
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
February 12, 2025
