The systematic process of accounting is employs to general views in its aspect of recognizing, recording and classifying its journal transactions with respect to the specific economic value received and value parted with.
These two general views are namely the cash basis approach and the accrual approach wherein view has its unique characteristic affecting the flow of recorded business transactions in the basic accounting equation. However, as their fundamental characteristic, each of the said views particularly affect the aspect of recognizing a specific business event or transaction with the perspective it is generally inclined with.
The cash basis is an approach in recording wherein one only recognize and journalize a specific event when an economic value in the form of monetary transaction occurs. This event is particularly characterized by an amount of money received as income and an amount of money parted with because of expense.
On the other hand, the accrual basis mainly employs a provisional view regarding journalizing each transactions and events. In this approach, one recognizes an event as a journal transaction when a specific economic value other the money is received such as services or assets received and an economic value parted with such as services rendered or asset parted with. In this view, a provision that instill that there is a specific economic value to be received is considerably a basis for recognizing an event as a journal transaction and so with values parted with.
The Essay on Running Head The Coase Theorem Within The Context Of Transaction Costs And Externalities part 1
Running head: THE COASE THEOREM WITHIN THE CONTEXT OF TRANSACTION COSTS AND EXTERNALITIES The Coase Theorem within the Context of Transaction Costs and Externalities April 01, 2009 The Coase Theorem within the Context of Transaction Costs and Externalities Introduction The Coase Theorem first emerged from an argument in The Problem of Social Cost, written by Ronald Coase. Nowadays, this theorem ...
As an example, ordinary transactions such as paying of expenses namely rent involve handing out the cash to the property owner. At this time, as the lesser pays out the rent and handed out the money, he then records the transactions as debit to expense and credit to assets as an amount of money is parted with.
On the other hand, suppose the rent payment occur by the end of the accounting period yet the entity who is recording fully recognize that there has to be an rent expense to be recorded and knows exactly the amount to be paid however, there is still now advance document for it. In the accrual basis, the entity recognizes this transaction as indeed an obligation to pay out an expense thus he records it as debit to accrued rent expense and credit to accounts payable to journalize the provision that a certain amount of money is to be parted as payment for an expense.
Bibliography
Eisen, Peter (2005).
Accounting: Business review Series. Barron’s Educational Series, USA. 4th edition.
