Friday, July 26, 2019

Distinguish between accounts that are presented in the income Essay

Distinguish between accounts that are presented in the income statement and balance sheet - Essay Example The accounts used in income statement representation or preparation are, revenue, expenses, losses and profit accounts while those that are used in the preparation of balance sheet are assets, liabilities and owners equity accounts. Good example of liabilities and equity accounts are taxes, notes, loans, payroll accounts and many more. It is easier to represent this two difference balance sheet and income statement accounts through a chart of accounts, this is a list of all the accounts that are used to record financial transactions (Berezin, 2005). Current assets this are the materials or goods that one have in an organization or business that are disposable for certain returns within a short period of time , majorly they are the stock of the business and they controls the inflow of cash into the business through a short time. While current liabilities are the debt that ones have to other people or the current debt of the business this is control by the creditors account. To relates the two there is a ratio that is used known as the current ratio this differentiate the two by dividing each other and an increase in current asset through a reduction in current liabilities shows that the business is doing fine, but an increase in current liabilities through a decrease in current asset proof that the business is under duress and something should be done to reduce that short. This is the dependency between the two, ones increase leads to the other decrease. To relate the two through balance creation or changes is an increase in cur rent asset leads to a reduction in current liabilities through payments; thus, reducing the debt or creditors balance while increasing the asset balance in the business (Fields, 2011). Considerations of current asset and liabilities are one of the fundamentals of a business; the relationship between the two is what keeps the business alive and kicking. The two are mainly related to payment terms and inventory policies. This is

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