Accounting For Organisations Essay Example | Topics and Well Written Essays - 1500 words

Accounting For Organisations - Essay Example Sales or revenues are generated when a company sells a product or service. The revenue recognition principle dictates that revenue be recognized in the accounting period in which is earned (Accoutingtools, 2015). Two of the major expenses categories within the income statement are cost of goods sold and operating expenses. The figure at the bottom of the income statement is the net income or net loss of the company during an accounting period. The balance sheet is a statement that shows the financial position of a company at a specific point in time. The balance sheet follows the logic of the basic accounting equation. The basic accounting equation states that assets equal liabilities plus stockholders equity (Misscpa, 2011). The three major sections of the balance sheet are assets, liabilities, and equity. The preparation of the balance sheet must follow the historic cost principle. Historical cost is a measure of  value used  in accounting  in which  the price of an asset  on  the balance sheet is based on its  nominal or original cost when acquired by the company (Investopedia, 2015). Assets in the balance sheet are subdivided into four subcategories: Some examples of assets included in the balance sheet are cash, inventory, account receivables, short term investments, prepaid expenses, office equipment, and goodwill (Weygandt, Kieso, Kimmel, 2002). The liabilities section of the balance sheet is divided into current liabilities and long term liabilities. Current liabilities are liabilities that expire in less than one year. A few of the current liabilities included in the balance sheet are notes payables, account payable, current maturities of long-term obligations, unearned revenue, salaries and wages payable, taxes payable, and other current liabilities. A list of potential long-term liabilities are bank notes payable, mortgage payable, bonds payable, and other long term