Category Archives: 2.07 Accounting In Itself

Is it an accounting estimate or an accounting principle that’s being changed?

The thing with changes is that whilst they’re allowed under certain circumstances, it’s always the question of whether something really counts for a change in principle or it’s just a change in an estimate. An accounting estimate also results in a change sort of, either an impairment, a new model for calculating an allowance etc. As you’re using new methods for accounting in certain areas, it’s easy to get things mixed between change in an accounting principle and accounting estimate.  Continue reading

Non-current assets and their treatment

To define the term ‘non-current assets’ requires that we address the concept of liquidity. An asset is liquid if it can be realized within a short period of time and with ease without losing any of its value (normally assumed within a year). Liquid assets comprise your company’s ‘current assets’. However if an asset is not as liquid due to its nature and its use for your company, it’s treated as a ‘non-current asset’ on your company’s balance sheet.  Continue reading

Importance of closing an accounting period

The importance of closing accounts for a determined period derives from understanding the importance of financial reporting in the first place. Financial reporting is for having accurate accounts about a company and it’s performance. Without those the business could possibly go into bankruptcy since it’s not in compliance with regulations (i.e. not paying taxes in due time, in required amounts), it would be unable to meet it’s creditors demands due to insufficient cash flows and liquidity problems (since the accounts didn’t reflect accurate demand of raw material for an example and the company kept purchasing more when it didn’t need this much goods). These effects in turns impact people, they would lose their jobs and so on.  Continue reading