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Are you studying for your Cambridge Accounting? Then you’ve come to the right place! Not only will you find concepts explained in a way that you will understand, we will also give you tips and common mistakes that people make when answering questions.

 How to make the most out of this site!

Its simple really. You are here because of these reasons

1. There is a specific topic you need sharpening up on - search it, check out the categories on the right, or go on the theory page
2. You are here to revise your course- check out the theory page, there is targeted infomation for your level!
3. You just want to find out what accounting is about - have a read of everything
4. You need one-on-one help - online help or live tutoring is available in Auckland!
5. Want to find tips and tricks on the best way to answer questions? Check out the tips category which includes analysis on examiner reports!

Each post is divided into different levels and depths. Most basic on the top, the post will let you know when you no longer need to read further for your level. Of course, knowledge is power, why not learn a little more?

Accounting Concepts- Business Entity

What is business entity?

Business entity is the accounting convention which states that the owner's financial affairs must be kept separate from the business.

The business is a separate entity from the owner, which means even if the business consists of no one but the sole owner, the money that he puts into it is considered capital.

It also means that the owner cannot just take goods sold in the business for his own consumption. This, along with cash withdrawals are all known as 'drawings'.

When we talk about capital we define it as the amount of money the business owes the owner. Similarly, when we talk about the company's net assets, the value of total assets less total liabilities is = capital. Which means when the business sells all its assets, and pays off all its liabilities the money left over, if any, will go to the owner.

Accounting Concepts- Historical Cost

Welcome to the accounting convention of historical cost.

Historical cost convention means that assets and liabilities must be stated at their historical cost and not at market value. The only time when accounting records move away from this concept is when the business is being liquidated, where their assets are not longer used in business but are for sale.

Why do we use the historical cost? It is to ensure that the records are kept reliable. However some may argue that this does not provide a true and fair view of what the business is worth as some assets may increase in value of their lifetime, such as land. In such cases, there are methods of revaluing these which will be discussed at a higher level.