Not a member?     Existing members login below:

Simple Business


For e xa mp le, issuing a large volu me o f invoices would lead to a large income
figure being posted under an accrual system, however no cash would actually
have been received, and cash would n ot be available fo r the payment of
e xpenses.
When accrual accounting is used, separate cash flow records must be
ma intained fro m the accounting records to properly manage cash flow.
2.1.5. Financial & Accounting Concepts
Cash transfers & val ue tr ansfers
Financial statements involve a separation between the concept of “cash” and
the concept of “value”.
Cash represents holdings in bank accounts.
Value represents a holding of value that the business owns, and includes
cash, equipment, buildings, and e xpected payments from customers.
In some transactions, cash is transferred but there is no transfer of value.
In other events, value is transferred but there is no transfer of cash.
An exa mp le of the first situation occurs when an item of equip ment is
purchased.
Cash leaves the business and the cash balance decreases.
However, the value of the equip ment replaces the value of the cash paid out,
and there is no change in total value.
This represents a transaction that changes the business's assets from one for m
to another, without increasing or decreasing total value.
In this e xa mple , cash is e xchanged for the equipment.
An exa mp le of the opposite situation is the reduction in the value of the
equipment.
In this situation, there is a change in value, due to the reduction in the value
of the equipment.
46
 
Remove