Explained: Understanding the building blocks of Accounting
At the heart of every business—whether a small startup or a multinational corporation, lies a simple but powerful language: accounting. It tells the story of how money comes in, where it goes, what a company owns, and what it owes. Core concepts such as capital, assets, and liabilities form the foundation of this system, helping stakeholders assess financial health and make informed decisions.
Capital: The funds invested by owners or shareholders to start and run a business, forming the financial base of operations.
Drawings: The amount of money or assets withdrawn by the owner from the business for personal use.
Assets: Resources owned by a business that are expected to provide future economic benefits.
Liabilities: Financial obligations or debts that a business must settle in the future.
Fixed Assets: Long-term assets such as land, buildings, and machinery that are used in operations and not meant for resale.
Current Assets: Short-term assets like cash, inventory, and receivables that can be converted into cash within a year.
Tangible Assets: Physical assets that can be seen and touched, including equipment, vehicles, and property.
Intangible Assets: Non-physical assets such as goodwill, trademarks, and patents that add value to a business.
Fictitious Assets: Expenses or losses not yet written off, shown temporarily as assets for accounting purposes.
Current Liabilities: Short-term obligations, including creditors and bills payable, due within one year.
Contingent Liabilities: Potential liabilities that may arise depending on the outcome of a future event, such as pending legal cases.
Together, these concepts offer a snapshot of a company’s financial position, making them essential tools for students, professionals, and anyone seeking to understand how businesses measure success.
