Understanding Company Heritage and Accounting
1. The Economic Concept of Company Heritage
A. Elements and Economic Patrimony
Companies require resources, both human and material, to conduct their activities. These material resources, which constitute the company’s heritage, include:
- Buildings and Premises
- Machines
- Vehicles
- Goods
- Furniture and Fixtures
- Money
A company’s heritage is classified into three groups: property, rights, and obligations.
- Property: Tangible resources like buildings, machines, and money.
- Rights: What the company can claim from others (e.g., unpaid invoices from suppliers).
- Obligations: The company’s debts to others (e.g., outstanding purchase invoices to suppliers).
Equity is calculated as follows:
EQUITY = (PROPERTY + RIGHTS) – OBLIGATIONS
B. Inventory
An inventory is a detailed list of assets, classified as property, rights, and obligations, and measured in a unit of account (e.g., euro).
2. Economic Masses
Grouping assets with similar economic or financial significance creates balance sheet elements. These elements are categorized into three main groups: assets, liabilities, and net worth.
- Assets: Resources owned by the company and rights in its favor.
- Liabilities: Obligations the company owes to others.
- Net Worth: Represents the owner’s contributions to the company, also known as equity. It reflects the funds invested in the company after deducting liabilities from assets.
3. Accounting: Concepts, Aims, and Purposes
Accounting studies assets and investigates data processing and recording related to heritage. It records only data affecting the heritage, using a system that ensures accuracy and consistent registration rules.
4. Accounts
A. Definition and Concept
Accounts are records of changes in an element of the company’s assets, showing its status at a specific date. They are represented in a dual form, with debit and credit sides recording increases and decreases in value.
B. Representation of the T-account
The T-account is a common way to represent accounts. The account title is at the top, with debits on the left and credits on the right.
C. Classification of Accounts
- Asset Accounts: Represent assets and rights.
- Liability Accounts: Represent obligations.
- Net Worth Accounts: Represent funds contributed by the owner.
D. Data Recording: Debit and Credit Entries
The balance of an account is calculated by adding the debit amounts and subtracting the credit amounts (or vice versa).
E. Specific Terms Used in Accounts
- Debit (Cargar/Adeudar): Making an entry on the debit side of an account.
- Credit (Abonar/Acreditar): Making an entry on the credit side of an account.
A debit balance occurs when debit amounts exceed credit amounts. A credit balance occurs when credit amounts exceed debit amounts.
5. The Double-Entry System
The double-entry system records every transaction with at least two entries, one debit and one credit. This ensures that for every decrease in one element, there’s an increase in another.
6. Accounting Books
Accounting uses various books to organize and process data:
- Journal
- Ledger
- Inventory and Annual Accounts Book
7. Structure, Characteristics, and Use of Basic Accounting Books
A. The Journal
The journal records all daily transactions, although totals for periods up to a month can be recorded together. Entries are called “seats” and are recorded chronologically.
B. Ledger
The ledger organizes all the company’s accounts.
C. The Book of Inventory and Annual Accounts
This mandatory book contains inventories and balances, along with the annual accounts (profit and loss account, statement of changes in equity, statement of cash flows, balance sheet, and memory) prepared at the end of the fiscal year.
8. General Accounting Plan (PGC)
The PGC sets the technical framework for accounting standards in Spain, ensuring transparency, reliability, and comparability. It adapts accounting regulations to business transformations and harmonizes Spanish law with European Union rules.
A. Structure and Content
- Conceptual Framework of Accounting
- Registration Rules and Rating
- Annual Accounts
- Chart of Accounts
- Definitions and Accounting Relationships