Financial accounting (Asset, liability, revenue, expense and sale) Essay

Financial accounting (Asset, liability, revenue, expense and sale) - Essay Example Further those are classified as tangible or intangible assets. Use of fixed assets is written off to profit and loss account as depreciation. Liabilities are of two types, namely current liabilities and non- current liabilities. Liabilities whose obligation to pay arise within a period of twelve months or in a business cycle are called current liabilities. These are classified in balance sheet on liabilities side as ‘current liabilities’ and also include the current obligations (arising within 12 months) of long term liabilities. It may also be shown as deduction from current assets in order to calculate net current assets. Long term liabilities or non- current liabilities are those are due to be paid beyond a period of twelve months or a business cycle. These are shown separately than current liabilities on liability side of balance sheet. Expenses: Expenses generally result from increases in liabilities or decreases in assets. For example rent for use of business premises increases the current liabilities and thus results in expenses. Expenses are deducted from total revenue or income in an income statement or profit and loss account in order to compute profits or losses during an accounting period. Expenses may be revenue expenditure or non- revenue expenditure Revenue expenses are used to compute profits or losses of the business. Non- revenue expenses are generally added to assets in respect of which those are incurred. Sale: Sale of goods takes place on transfer of ownership to the buyer and receipt of value or claim to the sales value of such goods. Sales are recognized as revenue from regular business of entity. The goods dealt in are those in the regular course of business of the entity. Sale is treated as revenue or income in the profit and loss account for purpose of calculation of profit or loss earned during the accounting period. Sales that are