Financial Accounting

Lecture#3

• Pillars of Accounting
 PILLARS OF ACCOUNTING

There are five basic pillars of accounting :

• Assets
• Liabilities
• Capital or Owner’s Equity
• Expenses
• Revenues
 PILLARS OF ACCOUNTING

Assets :

An asset is a resource that has some economic value to a

company and can be used in a current or future period to
generate revenues.

Assets

Current Assets Fixed Assets

 PILLARS OF ACCOUNTING

Current Assets :

• Current assets are assets or resources that the company

owns having economic future value or benefit for less
then one year.

For Example :
• Cash, Account receivable, Inventory and Marketable
securities etc.
 PILLARS OF ACCOUNTING

Fixed Asset :

• Fixed assets are assets or resources that the company

owns having economic future value or benefit for a
longer period such as more then one year.

For Example :
• Land, Building , machinery, Equipment and Long term
investment etc.
 PILLARS OF ACCOUNTING

Liabilities :
• Liability is something a company owes, or we can say it is
the obligation arising from a past business event.
• Any type of borrowing from persons or banks for
improving a business or personal income that is payable
during short or long time.

Liabilities

Current Non-Current
Liabilities Liabilities
 PILLARS OF ACCOUNTING

Current Liabilities :

• Current liabilities are a company’s short term financial

obligations that are due within one year or within
normal operating cycle.

For Example :
• Accounts payable , short term debt and other payables
like Salary payable, rent payable, dividend payable etc.
 PILLARS OF ACCOUNTING

Non-Current Liabilities :

• Non-Current liabilities are a company’s long term

financial obligations that are Carried over a number of
years or at least more then one accounting cycle .

For Example :
• Long term loans and advances etc.
 PILLARS OF ACCOUNTING

Capital or Owner’s Equity :

• Owner’s equity, often called net assets, is the owners’ claim

to company assets after all of the liabilities have been paid
off. In other words, if the business assets were liquidated to
pay off creditors, the excess money left over would be
considered owner’s equity and capital.
• That is why it is often referred to as net assets. According to
the accounting equation, owner’s equity equals total
company assets minus total company liabilities.
 PILLARS OF ACCOUNTING

Expenses :

• An expense in accounting is the money spent, or costs

incurred, by a business in their effort to generate revenues.
• An expense is defined in the following ways:
• A purchase in capital equipment (e.g., a machine or a
building) decreases the book value of the asset over the
years through depreciation expense
• A prepaid expense, such as prepaid rent, is an asset that
turns into a cash expense as the rent is used up each
month.
 PILLARS OF ACCOUNTING

Revenue:

• Revenue, often referred to as sales, is the income

received from normal business operations and other
business activities.
• Revenue is known as the top line because it appears
first on a company's income statement.
Thank You