Know Your Fundamental Accounting Functions

The core functions of accounting are bookkeeping and monetary reporting to managers and traders. In textbooks and writings, economists differ sharply with accountants on this point. As is shown in Desk three-A.1 , economists would define “earnings” as the residual after deduction of the cost of equity capital from reported e-book income. Whether it is assumed, as earlier than, that shareholders minimally require a rate of return of 15 % per year on funds entrusted to the firm below the widespread-stock contract, then the economists measure of “earnings” could be only $19 million, not $109 million. In other phrases, economists outline as earnings only the windfall acquire over and above the shareholders’ required return. The latter—S90 million in the current example—is treated simply as a part of the firm’s value of doing business. When wages account is included with salaries it treated is as oblique expense and is taken into … Read the rest

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