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Accounting is the area of finance that examines the various things that show the financial and economic activity of a business or other entity.

Knowing the circumstances and situation in which a firm finds itself is essential for developing the appropriate strategies to enhance its financial performance. For instance, if we purchase wood to create chairs,

we must count that purchase in order to determine how much we have, how much it cost, who the supplier is, when we purchased it, etc. All of these and more is the responsibility of accounting.

Accounting is a tool that may be used to control a business’s costs and revenue. Any business that is expanding its operations engages in buying, selling, and financing activities. As a result of these operations, the equity of the business changes and it makes a profit or a loss.

The need to correctly manage the accounting parameters is understood by all businesses. Both huge international corporations and so-called small and medium-sized businesses (SMEs) are involved in this notion.

In the same way, it results from pressure from federal, provincial, and local governments on each business formation as well as financial factors – in terms of assuring appropriate profitability – and tax provisions.

Equity elements and financial statements

Financial statements and equity components both exist in accounting. These two ideas are crucial because they form the foundation of the entire idea.

The resources are:

Passive, active, and net wealth.

However, the financial statements are as follows:

  • Balance sheet or situation.
  • Profit and loss account.
  • Statement of changes in equity.
  • Statement of cash flows.

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