Explain the terms assets and liabilities, Accounting Basics

Two friends, Joe and Bill, both have carpentry skills and decide to go into business as partners together ?tting kitchen cabinets. Joe's uncle has agreed to provide £20,000 of capital, in the form of a loan. They have come to you as a chartered accountant working in professional practice for advice.

(a) Explain the different types of partnership that Joe and Bill might form. Make a recommendation as to which type of partnership might be most appropriate for Joe and Bill to form.

(b) Drawing on your knowledge of stakeholder theory, what information would Joe's uncle need about the business affairs of Joe and Bill's partnership?

(c) Why would Joe and Bill come to you as an accountant for advice?

(d) After starting in business, Joe and Bill decide to engage a young of?ce manager/book-keeper, Luz, who has just started a book­ keeping course at the local college. Luz advises them that she will be applying the following accounting terms:

l the accruals concept

l substance over form

l the historical cost concept

However Luz's explanations are unclear. Joe has come to you for further help. Explain each concept in turn, and its importance in accounting.

(e) Joe has also asked you to explain the terms 'assets' and 'liabilities'. Explain each term, giving the characteristics and type of each. Give relevant examples to support your explanations.

(f) After the business has been running for a few months, Joe has decided to take a greater interest in the accounting system. He is confused as to why the books of account include a receivables ledger control account and a receivables ledger. Provide Joe with an explanation.

Posted Date: 3/8/2013 12:53:40 AM | Location : United States

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