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Knowing the Basics of Liability and Assets

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Knowing the Basics of Liability and Assets Powered By Docstoc
					Having some knowledge of accounting will make your life a bit easier. If you plan to invest in a
new venture business, or perhaps picking up where your father left off, planning to get a loan,
seeking a job in any marketing company, maybe be a manager of some multinational company or
having people to manage your own assets and liabilities, knowing some of the basics of
accounting becomes mandatory.
Mostly, accounting is divided into two categories

Cash Bases Accounting

Accrual Accounting

Cash Based accounting
The Cash Based accounting is focused on Individual's Personal transactions, who keeps track of
the money he withdraws, deposits, gives or receives from someone. this type of accounting
becomes active when there is a cash transaction taking place.
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Accrual Accounting
With Accrual Accounting, you would need an accountant who notes the transactions even if
there was no cash that had been exchanged. The principle of this method is to compare or see the
ratio of expenses to expenditure. If your expenditure is more, then you would have to cut back on
luxuries for awhile, but if it is not then you could always put it back for future use. This type of
accounting keeps you informed on the amount that you owed; however this might not always
match up with the figures of your bank balance.
Here are a few terms you should know about.
   Assets- are possessions that have a good market value. Assets have 3 classifications and they
      are, Current Assets- This is a cash asset that consist checking or savings accounts of an
      individual, this also includes such things as marketable securities, stocks,bonds,shares,
      ect, ect. monies lent or payments due from clients.
   Fixed Assets- this covers tangible things such as property, machines,land, equipment and
      more, that are not meant to be sold.
   Intangible Assets- covers untouchable things such as copyrights,trademarks, and patents.
      these have tremendous monetary significance.
However when there is assets, there will always be liabilities, these are the debts that you have to
pay back. this can be done with ether cash of valuables. There are two types of liabilities.
   The Current Liabilities- these are to be paid back in a certain amount of time and most
      often throughout the current assets. these are accounts payable such as bills you have to
      pay monthly, or notes of payable-loans taken from banks that are meant to be repaid
      within 30 days, compulsory expenses such as taxes, wages.or interests.
   Long Term Liabilities- these are debts that can be paid over a long period of time, longer
      then a month.
Financial Capital- is economic capital. this is liquid merchandise that stands for wealth or other
styles, or capital. there are 4 ways to manage financial capital.

First, capital is needed when a contract is made with any sort of assets. financial instruments can
be use as a form of currency in cases of a sale, purchase or trade goods

Second, it works as a medium such as gold standard of deferred payment.

Third, The Unit of Account has a market value attached to it which in turn varies with the
economy of the country.

Fourth, The Source of Value is concerned with financial capital that needs to be saved and
recovered. It is a collection of things like gold, real estate, collectibles etc.


Petty Cash is a factor that is important is a small business. This would be the smallest account
that is within a business with bills and coinage that is set to pay for the little expenses that are
required.

Here are a few business types to be aware of.

Sole proprietorship- This is where a single person starts his own business

Partnership- This is where more then one businesses or companies that is started by two or more
people, who conjointly own it.

Corporations- This involves a lot of shareholders or investors that are responsible in the decision
making of the company.

Limited Liability Companies- these can be considered parallel to corporations, the difference is
that the members are not legally obligated to pay the debts if the business should fail.



This was just a broad guidelines of accounting basics, this is essential knowledge for anyone, no
matter what walks of life you come from.

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posted:9/19/2011
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About my name is Mohsin Ali