Entity and Equity Concept

An entity means an Organization, whether a company or not, big or small or profit oriented or not, having a separate existence (entity) from the owner. Equity means any right, claim or interest in an asset (in accounting, as it could relate to things other than assets in the other departments of life) recognized as valid under any law based on impartial justice. From the description of what constitutes the concept of “equity”. As stated above, there is no bar to admitting that all the items on the liabilities side of a Balance Sheet can be described as items of equity, which can be broadly classified as follows:

-Shareholders’ equity comprising different kinds of Shares plus all kinds of Reserves plus all kinds of Retained Earnings less Expenditure/s to the extent not written off, such as Preliminary Expenses, Deferred Revenue Expenditure, etc. -Long-term creditors/lenders -Current Liabilities.

Equities concept are treated differently for a going-concern from a company, which is going, or gone into liquidation. A going-concern concept is one, accounting thinks that the business will exist indefinitely into future and transactions are recorded accordingly, which has not contemplated going into liquidation even in the remotest future at the time of preparing its latest financial statements, consisting primarily of the Balance Sheet and the P/L A/c. The main point of difference is that the residue of money received from sale of the business less all liabilities are due for return to the Equity Shareholders, while liabilities and Preference shareholders are paid off only, the legally prior-committed amount. In liquidation, the Equity Shareholders may get less than their book-value of claims. The equities can be looked at from different angles, depending on how the equity holders, mainly the shareholders, look at the business entity’s assets. At present, however, the ways in which the employees, the community as well as the rest of the society at large, meaning the country as a whole, look at the Organization.

The ways in which the different kinds of equity holders view their claims on the assets of the entity and their relative strengths among themselves determine a lot of accounting and social issues. However, there is no agreement regarding which prices are relevant. These differences arise because of different objectives of different authors of accounting postulates based on accounting environment. In accounting, these factors are responsible for the format and the other aspects of what is known as the “Design of Accounts”, Disclosure and Transparency of Accounts, etc. But an accountant today will have to consider every aspect of traditional accounting from the formal angle of the “structure” of the Fundamental Accounting Equation, which has already been referred to.

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