Business Accounting: Assets, Liabilities, and Financial Statements
**Accounting: Economics**
Accounting is the economic discipline that studies the heritage of a business. Its scientific foundation is based on registering a company’s economic information and standards.
Objective
To provide economic information at different levels and to various types of users in the enterprise and its economic environment:
- Executives: To have sufficient information to make decisions and plan future actions.
- Owners or shareholders: To verify that their interests are well protected.
- Workers: Their business continuity and possible incentives depend on the company’s results.
- Company creditors: To know if the company demonstrates solvency and security guarantees to recover its debts.
**Business Heritage**
A set of property rights and obligations that a business has, valued with an intended purpose.
- Good: Everything that can be appreciated and valued by people.
- Rights: Debts that customers have to pay to the company.
- Obligations: Debts that the company has to pay to suppliers.
**Assets**
Reflects the economic structure of the company.
1. Non-Current Assets
Formed by those heritage features relating to the firm for more than one economic exercise. It is formed by:
- Fixed Assets: Patrimonial masses composed of elements of productive activity. Goods acquired with the intention of permanence (tangible fixed assets: buildings; intangible assets: computer programs; depreciation of fixed assets).
- Long-Term Investments: Consists of any investment in financial assets in the long term, in units with capital made in the long term.
- Real Estate Investments: Those that encourage retention and real estate investment that are not involved in the spontaneous activity of the company.
2. Current Assets
Made up of elements that are in constant rotation, such as:
- Inventories: Materials that are used in making the product or goods already produced, which is the proper activity of the company. All these goods undergo a transformation.
- Receivables: Credits and rights that the company will receive for transactions consummated and that will provide effective remedies within a relatively short period.
- Available: Comprising those elements that have immediate availability.
3. Net Heritage
Net = own resources. The main part is the capital and also part of the reserves and profit and loss account.
**Elements of the Annual Accounts**
Elements that are part of the balance sheet:
1. Assets
Other assets and resources economically controlled, rights of the company, resulting from past events from which benefits are expected.
2. Liabilities
Present obligations resulting from past events whose extinction the company expects an outflow of resources that can produce benefits in the future.
3. Net Heritage
The residual assets of the company after deducting all liabilities. These are the contributions made by partners or owners.
Elements Recorded in the Profit and Loss Account
1. Income
Increase in equity of the company during the year.
2. Expenditure
Decreases in net assets of the company during the year, either outputs or decreases in the value of assets.
**Annual Accounts**
Financial statements whose mission is to report on business results and their assets and financial situation.
Annual Accounts of SMEs
- Balance Sheet: The company’s financial situation at the end of a particular fiscal year (static representation).
- Profit and Loss Account: The firm’s performance during an exercise, the result of its activity (difference between revenue and expenditure).
- Memory: Quantitative and qualitative information relevant to decision-making. It reinforces and complements the information of the two above.
- Statement of Changes in Equity: Changes in the composition of the equity of the company from one year to another.
- Statement of Cash Flows: Changes in the monetary position from one period to another.
**Development Standards**
Annual accounts are mandatory and must be prepared by the employer or enterprise administrators within a maximum period of three months from the closing date of the fiscal year. The formulation must be included on the closing date and must be signed by the employer, by all the administrators, or by the responsible partners in the case of a limited or limited liability company.
**Balance Sheet**
A document that displays the company’s heritage at a given time.
**Profit and Loss Account**
A statement whose target is to calculate the result a company earned over a period. It also explains the composition of the result and the operations carried out to reach said result. This account is a dynamic state.
Structure
1. Result Level A) Operating Results
Given by the difference between income and holding costs of the activity.
2. Result Level B) Financial Result
Obtained as the difference between financial income and financial expenses. It can be positive or negative.
3. Result Level C) Income Before Taxes
Also called income before taxes and is the sum of the operating result plus the financial result.
4. Result Level D) Profit or Loss
Also called net profit. It is given as the difference between the result before tax less the tax benefit.