17 March 2011
Calculate Shareholders’ Equity (Basic Accounting Equation)
Determine the total assets a company possesses. The formula to compute this figure is long-term assets plus current assets.
Long-term assets are the value of equipment, property and capital assets that are going to be in use for more than 1 year minus any depreciation of these assets. Current assets are defined as any receivables, work in process, inventory or cash. In accounting terminology, any asset that the company has held for fewer than 12 months is a current asset.
17 March 2011
Establish the total liabilities of a given company. Like the asset calculation, the formula for total liabilities is long-term plus current liabilities. Long-term liabilities are any debts on the balance sheet that don’t require total repayment within a year. Current liabilities are the cumulative total of accounts payable, salaries, interest and any other accounts due within a year’s time.
Subtract total liabilities from total assets to determine shareholders’ equity.
These are like intangible assets which cannot be seen or touched. Actually these are not assets but some expenditures which cannot trf to profit and loss account of a particular perid that is why these items are shown on assets side of balance sheet to be written off to P&L account in reasonable years
17 March 2011
Asset created by an accounting entry (and included under assets in the balance sheet) that has no tangible existence or realizable value but represents actual cash expenditure. The purpose of creating a fictitious asset is to account for expenses (such as those incurred in starting a business) that cannot be placed under any normal account heading. Fictitious assets are written off as soon as possible against the firm's earnings.