Introduction to Accounting and Business

Accounting and Business
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Institutional Affiliation
Businesses are expected to generate returns for the owners, and different methods can be applied in recording the transactions. The business entity concept can also be termed as the economic concept, and it refers to a situation where the only transactions relating to the business are to be recognized. In a business setting, there are different transactions, and some may not affect the company directly. Such transactions need to be recorded separately to ensure the financial statements represent a true and fair view of the business operations (Kuzminskyi & Voronova, 2014). Transactions relating to other businesses also need to be set aside to ensure the financial statements can maintain a sense of usability. The business entity concept also helps in measuring the performance of the business since it only takes into account aspects that affect the business.
The cost entity concept is also known as the historical cost principle and focuses on the manner in which the assets held by the firm are recognized. The assets are taken up by a business to help in different operations, and the concept states that the assets need to be recorded at the original cost at the time of purchase (Kuzminskyi & Voronova, 2014). The values to be shown on the balance sheet will also reflect the value of such assets at the current time which takes into account the issue of depreciation. Particular assets might be recorded as per the current market value, and this applies to assets that have quoted prices.

The accounting equation can be termed as a fundamental part of the balance sheet since it determines the manner in which the various balance sheet items related to each other. The equation is made up of the value of the assets which is arrived at by summing the value of liabilities and the value of equity. The equation is the primary source of the double entry accounting. This means that a particular transaction has a debit and a credit effect on various accounts (Kuzminskyi & Voronova, 2014). The accounting equation seeks to address the different items used by the business to generate wealth. Most businesses finance their assets through avenues such as borrowing from the shareholders and getting funding from other sources. This may include funding from sources such as long-term borrowing as well as the short-term credit facilities. The shareholders equity is arrived at by taking into account the share capital and the retained earnings. The amount of treasury shares needs to be subtracted from the two items to help the business arrive at the value of equity.
References
Kuzminskyi, I. A., & Voronova, M. O. (2014). UPDATING THE ACCOUNTING PRINCIPLES BASED ON THE STRATEGIC CONCEPT OF BUSINESS MANAGEMENT. Practical Science Edition “Independent Auditor”, 1(7), 15-19.