Definitions – gold
Examples – blue
Accounting module – week 14
Company distributing profits to shareholders is called dividends.
Retained profits are profits kept in order to be re-invested back into
the company. This means that the shareholders’ owners’ equity will
increase as the profits should be for shareholders.
To add on to accruals definition from last week, if a customer owes
money on credit to a company, they still call it as revenue earned as
they’ll eventually get the money.
Prudence / conservatism – Profits are not recognised until they are
realised, losses are provided for as soon as anticipated.
E.g., a company realises that someone that owes them £10,000 is
insolvent, then the company with the concept of prudence should
call the £10,000 a loss.
Even if someone owes money and isn’t insolvent, accountants will
say wait until they’ve paid and then recognise as in then count it.
Examples – blue
Accounting module – week 14
Company distributing profits to shareholders is called dividends.
Retained profits are profits kept in order to be re-invested back into
the company. This means that the shareholders’ owners’ equity will
increase as the profits should be for shareholders.
To add on to accruals definition from last week, if a customer owes
money on credit to a company, they still call it as revenue earned as
they’ll eventually get the money.
Prudence / conservatism – Profits are not recognised until they are
realised, losses are provided for as soon as anticipated.
E.g., a company realises that someone that owes them £10,000 is
insolvent, then the company with the concept of prudence should
call the £10,000 a loss.
Even if someone owes money and isn’t insolvent, accountants will
say wait until they’ve paid and then recognise as in then count it.
