Ian Hilton Expense and Assets

Ian Hilton Expense and Assets - STUDENTS 055 KNOWING AN...

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STUDENTS 055 AUGUST/SEPTEMBER 2005 NATIONAL ACCOUNTANT KNOWING AN EXPENSE IS AN ASSET IAN HILTON THE DISTINCTION BETWEEN ‘ASSETS’ AND ‘EXPENSES’ MADE SIMPLE. “I despair of the young today,” said Dick. “What’s brought this on?” asked Tom. “I’m helping my grandchild with some of his schoolwork and I asked him what a fifth of $125,000 was and he said ‘Don’t know, where’s the calculator?’ He then spelled yield ‘yeilld’ and when I protested he said ‘Don’t worry, the spell check will pick it up!’” “Here’s Harry,” said Tom, “tell him.” Dick did. “He doesn’t seem prepared for life the way we were,” concluded Dick. “What life are you talking about?” asked Harry. “Answer me these questions: Can you send a text message one handed and in the dark? Can you set your VCR? Can you get an iPOD to work? Who do you call if your computer system crashes?” “No; no; no; and alright, my grandchildren,” replied Dick. “What are you trying to teach him?” asked Tom. “He is doing an introduction to accounting and he doesn’t understand how to account for expenses and assets,” said Dick. “He can’t even tell the difference between them and you can’t get anything easier than that can you?” “I know a number of experienced accountants who at the moment are dealing with the introduction of International Accounting Standards,” said Harry, “who might not agree with your ‘easy’ statement.” “Wouldn’t you agree the problem is easy at the introductory level of accounting?” asked Tom. “Well, the start of any study can be confusing rather than hard,” said Harry. “Students have to learn the language of accounting and the particular accounting definitions of words which they haven’t met before. Then they must learn that in accounting the definitions may change if the method of accounting changes – for example, when single line is compared with accrual accounting. Then there is the time period with which you are dealing. Time can appear to change ‘assets’ into ‘expenses’ or freeze ‘expenses’ into ‘assets’. After a time, when you are comfortable with how accounting uses its terminology, it seems no problem. The way to start is to look at definitions for expenses and assets. “The problem is that the definitions can be simple or complex. There are simple ones which would appear to fit the common parlance or more complex ones that attempt to cover all the machinations of accounting. “Like this: a simple definition says that expenses are outgoing payments made by business entities. A complex version is that expenses are consumptions or losses of future economic benefits in the form of reductions in assets or increases in liabilities of the entity, other than those relating to distributions to owners that result in a decrease in equity during the reporting period (SAC4). “Or this: simple –
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Ian Hilton Expense and Assets - STUDENTS 055 KNOWING AN...

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