Asset1

An asset is a resource controlled by the enterprise as a result of past events and from
which future economic benefits are expected to flow to the enterprise.
Equity
Equity is the residual interest in the assets of the enterprise after deducting all its
liabilities.
Income
Income is increases in economic benefits during the accounting period in
the form of inflows or enhancements of assets or decreases of
liabilities that result in increases in equity, other than those
relating to contributions from equity participants.
Revenue
Revenue arises in the course of the ordinary activities of an enterprise
and is referred to by a variety of different names including sales,
fees, interest, dividends, royalties and rent.
Gains
Gains represent other items that meet the definition of income and may
or may not, arise in the course of the ordinary activities of an
enterprise. Gains represent increases in economic benefits and as such
are no different in nature from revenue. Hence, they are not regarded as
constituting a separate element in this Framework.
Expenses
Expenses are decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incurrences of
liabilities that result in decreases in equity, other than those
relating to distributions to equity participants.
Losses
Losses represent other items that meet the definition of expenses and
may or may not, arise in the course of the ordinary activities of the
enterprise. Losses represent decreases in economic benefits and as such
they are no different in nature from other expenses.

1
IAS – 1 “Framework for the Preparation and Presentation of Financial Statements”.
INVESTOPEDIA.COM

Definition of Assets: A resource having economic value that an individual, corporation or

country owns or controls with the expectation that it will provide future benefit.
Assets are bought to increase the value of a firm or benefit the firm's operations. You can think of
an  asset as something that can generate cash flow, regardless of  whether it's a company's
manufacturing equipment or an individual's rental apartment.
In the context of accounting, assets are either current or fixed (non-current). Current means that
the asset will be consumed within one year. Generally this includes  things like  cash, accounts
receivable and inventory. Fixed assets are those that are expected to keep on providing benefit
for more than one year, such as equipment, buildings,  real estate,  etc.

WIKIPEDIA.COM
A Sole proprietorship is a business which legally has no separate existence from
its owner. Hence, the limitations of liability enjoyed by a corporation do not apply.
All debts of the business are debts of the owner. It is a "sole" proprietor in the
sense that the owner has no partners. A sole proprietorship essentially means a
person does business in their own name and there is only one owner. A sole
proprietorship is not a corporation, it does not pay corporate taxes, but rather the
person who organized the business pays personal income taxes on the profits
made, making accounting much simpler. A sole proprietorship need not worry
about double taxation like a corporation would have to.
A business organized as a sole proprietorship will likely have a hard time raising
capital since shares of the business cannot be sold, and there is a smaller sense
of legitimacy relative to a business organized as a corporation or limited liability
company. Hiring employees may also be difficult. This form of business will have
unlimited liability, therefore, if the business is sued, it is the proprietor's problem.
Another disadvantage of a sole proprietorship is that as a business becomes
successful, the risks accompanying the business tend to grow. To minimize
those risks, a sole proprietor has the option of forming a limited liability company.
Most sole proprietors will register a trade name or "Doing Business As" with. This
allows the proprietor to do business with a name other than their legal name and
also allows them to open a business account with banking institutions.

In business and accounting an asset is anything owned which can produce

future economic benefit, whether in possession or by right to take possession, by
a person or a group acting together, e.g. a company, the measurement of which
can be expressed in monetary terms. Asset is listed on the balance sheet. It has
a normal balance of debit.
Fixed assets
Also referred to as PPE (property, plant, and equipment). Assets which are
purchased for continued and long-term use in earning profit in a business. This
group includes land, buildings, machinery, furniture, tools, wasting resources
(timberland, minerals), etc. They are written off against profits over their
anticipated life by charging depreciation expenses (with exception of land).
Accumulated depreciation is shown in the face of the balance sheet or in the
notes.
These are also called capital assets in management accounting, especially when
intangibles are considered.
[edit]
Intangible assets
Intangible assets lack physical substance and usually are very hard to evaluate.
They include patents, copyrights, franchises, goodwill, trademarks, trade names,
etc. These assets are (according to US GAAP) amortized to expense over 5 to
40 years with exception of goodwill.
Current assets
Current assets are cash and other assets expected to be converted to cash, sold,
or consumed either in a year or in the operating cycle. These assets are
continually turned over in the course of a business during normal business
activity. There are 5 major items included into current assets:
1. Cash - it is the most liquid asset, which includes currency, deposit accounts, and
negotiable instruments (e.g., money orders, checks, bank drafts).
2. Short-term investments - include securities bought and held for sale in the near
future to generate income on short-term price differences (trading securities).
3. Receivables - usually reported as net of allowance for uncollectible accounts.
4. Inventory - trading these assets is a normal business of a company. The inventory
value reported on the balance sheet is usually the historical cost or fair market
value, whichever is lower. This is known as the "lower of cost or market" rule.
5. Prepaid expenses - these are expenses paid in cash and recorded as assets before
they are used or consumed (a common example is insurance). See also adjusting
entries.
The phrase net current assets (also called working capital) is often used and
refers to the total of current assets less the total of current liabilities.
In the common law, a partnership is a type of business entity in which partners
share with each other the profits or losses of the business undertaking in which
they have all invested.
There are two types of partners. General partners have an obligation of strict
liability to third parties injured by the Partnership. General partners may have
joint liability or joint and several liability depending upon circumstances. The
liability of limited partners is limited to their investment in the partnership.
A silent partner, also known as a sleeping partner, is one who shares in the
profits and losses of the business, but is uninvolved in its management, and/or
whose association with the business is not publicly known.
In the civil law the partnership is a nominate contract between individuals who, in
a spirit of cooperation, agree to carry on an enterprise, contribute to it, by
combining property, knowledge or activities and to share its profit. Partners may
have a partnership agreement, or declaration of partnership and in some
jurisdictions such agreements may be registered and available for public
inspection.

INVESTORWORDS.COM
asset
Definition

Any item of economic value owned by an individual or corporation, especially that which could be converted
to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car,
and other property. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred
stock, and retained earnings.

From an accounting perspective, assets are divided into the following categories: current assets (cash and
other liquid items), long-term assets (real estate, plant, equipment), prepaid and deferred assets
(expenditures for future costs such as insurance, rent, interest), and intangible assets (trademarks, patents,
copyrights, goodwill).

Smallbusinessbc.com
What is a Sole Proprietorship?
Starting a Sole Proprietorship is the simplest way to set up a business. As a sole proprietor you
would be fully responsible for all debts and obligations related to your business. A creditor with a
claim against a sole proprietor would normally have a right against the sole proprietor’s assets,
whether business or personal. This is known as unlimited liability.
In a Sole Proprietorship, you would perform all the functions required for the successful operation of
the business. These include:
← Securing the capital

← Establishing and operate the business

← Assuming all risks

← Accepting all profits and losses

← Paying all taxes

The sole proprietor is said to be self-employed.
Advantages of Sole Proprietorship
← Low start-up costs

← Greatest freedom from regulation

← Owner in direct control of decision making

← Minimal working capital required

← Tax advantages to owner

← All profits to owner

Disadvantages of Sole Proprietorship
← Unlimited liability

← Lack of continuity in business organization in absence of owner

← Difficulty in raising capital

← No name protection
Advantages and disadvantages of Partnership
There are a number of advantages and disadvantages that you should keep in mind when deciding
whether to operate your business as a Partnership. We encourage you to seek legal advice if you
have further questions about operating your business as a Partnership.
What is a Partnership?
Terms of the Partnership
Profit sharing
What is a Limited Partnership?
Advantages of Partnership
Disadvantages of Partnership
What is a Partnership?
A Partnership is an agreement in which you and one or more people combine resources in a
business with a view to making a profit.
In a General Partnership, you and one or more other owner would share the management of a
business, and each partner would be personally liable for all debts and obligations incurred. This
means that each partner is responsible for, and must assume the consequences of the actions of the
other partner(s).
Terms of the Partnership
In order to establish the terms of the Partnership and to protect yourself in the event of a
disagreement or dissolution of a Partnership, a Partnership agreement should be drawn up. You can
access some sample partnership agreements at the Small Business BC library, and standard form
Partnership agreements can also be purchased from the bookstore at Small Business BC.
Profit sharing
You would share in the profits according to the terms of the Partnership agreement.
What is a Limited Partnership?
A Limited Partnership involves limited partners who combine only capital. They are not involved in
managing the business and cannot be liable for more than the amount of capital they have
contributed. This is known as limited liability.
A Limited Partnership also involves general partners, who are involved in management. General
partners are fully liable for the debts and obligations of the business, but may be entitled to a
greater share of the profits.
Advantages of Partnership
← Ease of formation

← Low start-up costs

← Additional sources of investment capital

← Possible tax advantages

← Limited regulation

← Broader management base

Disadvantages of Partnership
← Unlimited liability

← Divided authority

← Difficulty in raising additional capital

← Hard to find suitable partners

← Possible development of conflict between partners

← Partners can legally bind each other without prior approval

← Lack of continuity

← No name protection

Advantages and disadvantages of Incorporating

There are a number of advantages and disadvantages that you should keep in mind when deciding
whether to operate your business as an Incorporation. We encourage you to seek legal advice if you
have further questions about operating your business as an Incorporation.
What is a corporation or limited company?
Advantages of Incorporation
Disadvantages of Incorporation
What is a corporation or limited company?
A corporation, also known as a limited company, is a legal entity that is separate and distinct from
its members (shareholders).
Companies are incorporated in BC according to the provisions of the Business Corporations Act.
When a company is incorporated, it acquires all of the powers of an individual, an independent
existence – separate and distinct from its shareholders, and an unlimited life expectancy. In other
words, the act of Incorporation gives life to a legal entity known as the corporation, commonly
referred to as a company. A company can acquire assets, go into debt, enter into contracts, sue or
be sued.
Ownership interests in a corporation are usually easily changed. Shares may be transferred without
affecting the corporation’s existence or continued operation.
The following characteristics distinguish a corporation from a Partnership or Sole Proprietorship:
← Limited Liability: normally no member can be held personally liable for the debts,
obligations or acts of the corporation beyond the amount of share capital the members has
subscribed.

NB: Each shareholder has limited liability. A creditor with a claim against the assets of the
company would normally have no rights against its shareholders, although in certain
circumstances shareholders may be held liable. We recommend that you seek professional
legal advice.
← Perpetual Succession: because the corporation is a separate legal entity, its existence does
not depend on the continued membership of any of its members.
Advantages of Incorporation
• Limited liability
• Possible tax advantage (if you qualify for a small business tax rate)
• Specialized management
• Ownership is transferable
• Continuous existence
• Separate legal entity
• Easier to raise capital
Disadvantages of Incorporation
← Closely regulated (For example, the Business Corporations Act requires all companies to file
an annual report and also file any changes to the location of company offices and its
directors. The company is also required to maintain certain corporate records.
← Most expensive form of business to organize (higher start-up costs related to professional
fees for legal and accounting services)
← Charter restrictions

← Extensive record keeping necessary

← Possible double taxation of profits

← Shareholders (directors) may be held legally responsible in certain circumstances

← Personal guarantees undermine limited liability advantage

IASB FRAMEWORK
← Accrual Basis. The effects of transactions and other events are recognised when they
occur, rather than when cash or its equivalent is received or paid, and they are reported
in the financial statements of the periods to which they relate. [F.22]
← Going Concern. The financial statements presume that an enterprise will continue in
operation indefinitely or, if that presumption is not valid, disclosure and a different basis of
reporting are required. [F.23]
Reliability
Information in financial statements is reliable if it is free from material error and bias and can be
depended upon by users to represent events and transactions faithfully. Information is not reliable
when it is purposely designed to influence users' decisions in a particular direction. [F.31-32]
There is sometimes a tradeoff between relevance and reliability - and judgement is required to
provide the appropriate balance. [F.45]
Reliability is affected by the use of estimates and by uncertainties associated with items
recognised and measured in financial statements. These uncertainties are dealt with, in part, by
disclosure and, in part, by exercising prudence in preparing financial statements. Prudence is the
inclusion of a degree of caution in the exercise of the judgements needed in making the estimates
required under conditions of uncertainty, such that assets or income are not overstated and
liabilities or expenses are not understated. However, prudence can only be exercised within the
context of the other qualitative characteristics in the Framework, particularly relevance and the
faithful representation of transactions in financial statements. Prudence does not justify deliberate
overstatement of liabilities or expenses or deliberate understatement of assets or income,
because the financial statements would not be neutral and, therefore, not have the quality of
reliability. [F.36-37]
← Asset. An asset is a resource controlled by the enterprise as a result of past events and
from which future economic benefits are expected to flow to the enterprise. [F.49(a)]
← Liability. A liability is a present obligation of the enterprise arising from past events, the
settlement of which is expected to result in an outflow from the enterprise of resources
embodying economic benefits. [F.49(b)]
← Equity. Equity is the residual interest in the assets of the enterprise after deducting all its
liabilities. [F.49(c)]
←
← Income. Income is increases in economic benefits during the accounting period in the
form of inflows or enhancements of assets or decreases of liabilities that result in
increases in equity, other than those relating to contributions from equity participants.
[F.70]
← Expense. Expenses are decreases in economic benefits during the accounting period in
the form of outflows or depletions of assets or incurrences of liabilities that result in
decreases in equity, other than those relating to distributions to equity participants. [F.70]
IAS 18
Revenue: The gross inflow of economic benefits (cash, receivables, other assets) arising from the
ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest,
royalties, and dividends). [IAS 18.7]
Measurement of Revenue
Key Definition

Revenue: The gross inflow of economic benefits (cash, receivables, other assets) arising from the
ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest,
royalties, and dividends). [IAS 18.7]

Measurement of Revenue

Revenue should be measured at the fair value of the consideration receivable. [IAS 18.9] An
exchange for goods or services of a similar nature and value is not regarded as a transaction that
generates revenue. However, exchanges for dissimilar items are regarded as generating
revenue. [IAS 18.12]

If the inflow of cash or cash equivalents is deferred, the fair value of the consideration receivable
is less than the nominal amount of cash and cash equivalents to be received, and discounting is
appropriate. This would occur, for instance, if the seller is providing interest-free credit to the
buyer or is charging a below-market rate of interest. Interest must be imputed based on market
rates. [IAS 18.11]

Sale of Goods

Revenue arising from the sale of goods should be recognised when all of the following criteria
have been satisfied: [IAS 18.14]

← the seller has transferred to the buyer the significant risks and rewards of ownership;
← the seller retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold;
← the amount of revenue can be measured reliably;
← it is probable that the economic benefits associated with the transaction will flow to the
seller; and
← the costs incurred or to be incurred in respect of the transaction can be measured
reliably.

Rendering of Services

For revenue arising from the rendering of services, provided that all of the following criteria are
met, revenue should be recognised by reference to the stage of completion of the transaction at
the balance sheet date (the percentage-of-completion method): [IAS 18.20]

← the amount of revenue can be measured reliably;

← it is probable that the economic benefits will flow to the seller;
← the stage of completion at the balance sheet date can be measured reliably; and
← the costs incurred, or to be incurred, in respect of the transaction can be measured
reliably.
When the above criteria are not met, revenue arising from the rendering of services should be
recognised only to the extent of the expenses recognised that are recoverable (a "cost-recovery
approach". [IAS 18.26]

Interest, Royalties, and Dividends

For interest, royalties and dividends, provided that it is probable that the economic benefits will
flow to the enterprise and the amount of revenue can be measured reliably, revenue should be
recognised as follows: [IAS 18.29-30]

← interest: on a time proportion basis that takes into account the effective yield;
← royalties: on an accruals basis in accordance with the substance of the relevant
agreement; and
← dividends: when the shareholder's right to receive payment is established.

Disclosure [IAS 18.35]

← accounting policy for recognising revenue

← amount of each of the following types of revenue:
← sale of goods
← rendering of services
← interest
← royalties
← dividends
← within each of the above categories, the amount of revenue from exchanges of
goods or services

Source: iasplus.com
IAS 18
December 1998 : Amended by IAS 39 Financial Instruments: Recognition and
Measurement, effective 1 January 2001

Accrual Basis. The effects of transactions and other events are recognised when they occur, rather than
when cash or its equivalent is received or paid, and they are reported in the financial statements of the
periods to which they relate. [F.22]

Going Concern. The financial statements presume that an enterprise will continue in operation indefinitely
or, if that presumption is not valid, disclosure and a different basis of reporting are required. [F.23]

Income. Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating
to contributions from equity participants. [F.70]

Expense. Expenses are decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than
those relating to distributions to equity participants. [F.70]

Recognition of the Elements of Financial Statements

Recognition is the process of incorporating in the balance sheet or income statement an item that meets the
definition of an element and satisfies the following criteria for recognition: [F.82-83]

It is probable that any future economic benefit associated with the item will flow to or from the enterprise;
and

The item's cost or value can be measured with reliability.

Based on these general criteria:

An asset is recognised in the balance sheet when it is probable that the future economic benefits will
flow to the enterprise and the asset has a cost or value that can be measured reliably. [F.89]

A liability is recognised in the balance sheet when it is probable that an outflow of resources
embodying economic benefits will result from the settlement of a present obligation and the amount at
which the settlement will take place can be measured reliably. [F.91]

Income is recognised in the income statement when an increase in future economic benefits related to
an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This
means, in effect, that recognition of income occurs simultaneously with the recognition of increases in
assets or decreases in liabilities (for example, the net increase in assets arising on a sale of goods or
services or the decrease in liabilities arising from the waiver of a debt payable). [F.92]

Expenses are recognised when a decrease in future economic benefits related to a decrease in an
asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that
recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a
decrease in assets (for example, the accrual of employee entitlements or the depreciation of
equipment). [F.94]

Source: IASB FRAMEWORK, April 2001

Cash-basis accounting records financial events based on cash flows. For example, when you
pay your rent your landlord would record an income event when you make the payment. The
landlord records an expense event when he pays the rental agent their fee for your apartment. It
is the accounting method used by most individuals, and by some businesses that have limited
payables or receivables or whose income and expense cash flows are closely associated with
each other in time.

Accrual-basis accounting records financial events based on events that change your net worth
(the amount owed to you less the amount you owe others). Standard practice is to record
expenses with the incomes they are associated with. For example, your landlord would record an
income event on the day your rent comes due (you owe it to him). He records an expense event
when the fee owed to the rental agent comes due for your apartment that month (he owes it to
the agent). The details of the actual cash flows and their timing are tracked by bookkeeping.
In accounting, an expense is a general term for an outgoing payment made by a business or
individual.

One specific use of the term in accounting is whether a particular expenditure is classified as an
expense, which is reported immediately to the investing public in the business's income
statement; or whether it is classified as a capital expenditure or an expenditure subject to
depreciation, which are not. These latter types of expenditures are reported eventually, but not
immediately, by business that use accrual-basis accounting, meaning all large businesses.

http://www.bambooweb.com