Definitions of Accounting, Auditing, Finance, and its types

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Debt

The debt can be simply defined as borrowing from banks or any other agencies or individuals are known as Debt. It is also known as liability. The organization or individual who pays the debtor provides goods or services on credit is known as debtors.

Equity

Equity can be simply defined as the funds of a business; the profit of the business is also known as equity. It is also known as Capital, Owners Equity, shareholders’ income, shareholders' equity.

Drawings

The drawings can be simply defined as the owner of the business draws some amount from the equity of the company is known as the drawings.

Assets

The assets can be simply defined as the property of the company or the resources of the company are known as the assets. Such as building, cash, receivables, vehicles, goodwill, inventory, Prepaid expense, Prepaid Rent, Advance payment, Fix Deposits, etc. are the assets of the company.

The Accounting Equation

The accounting equation can be simply defined as, it is the base of accounting, whole accounting depends on this equation without this equation accounting can be fulfilled or can be tailed. The accounting equation is: -

Assets=Liability + Equity

Or we can also read it as: -

Equity= Assets-Liability

Or we can also read it as: -

Liability= Assets- Equity

Finance

Finance can be simply defined as the management of funds is known the finance. To manage the fund's collection and funds payments is finance the main component of finance is Budget and Cash Flow management.

Accounts

The accounts can be simply defined as the recording of all business transactions is known as the Accounts. The main component of accounts is bookkeeping, Accounting, Financial Statements.

Audit

The audit can be simply defined as, the examination of accounting records that is known as the audit, the main component of the audit are Audit reports (The comprehensive report submitted by the auditors), Audit observations (The observation on any transaction by the auditor), Audit Para (A small component of the audit report submitted by the auditor), Audit Investigation Report (Term used by Government auditor of Pakistan this is annual audit report). The audit can be internal (an internal employee of the organization who reports to top management) audit and external audit (The external independent auditors such as Chartered Accountants, Government Auditor).  

Leverage

After understanding the accounting equation now, we can go for leveraged finance and before understanding Leveraged finance, we need to understand leverage, Leverage is a combination of debt or borrowings, and the equity or own resources are invested to get more return from the interest payable on the debt received.

The Types of Finance 

There are mainly three types of finance, which are Personal Finance, Corporate Finance, and Public Finance. 

Personal Finance 

Personal Finance can be simply defined as the management of individual finance. The person who manages his cash incoming and cash outgoing is known as personal finance.

Corporate Finance

Corporate Finance is the management of the finance of the corporations. The finance managers of the corporations manage the finances of their companies, complete the management of cash flows (Cash incoming and Cash outgoing).

Public Finance 

Public Finance can be simply defined as the Management of government funds, the total receiving, and payments of government or we can say the management of spending and revenues is known as public finance.

Leveraged Finance

 Now we able to understand our main topic of study, which is Leveraged finance, it can be simply defined as it is the use of a standard amount in addition to debt, as opposed to equity or cash, to cover the purchase of an investment asset. Payments are made to maximize the potential return on investment, assuming an increase in the value of the investment. The mixture of debt and equity management is known as leveraged finance as some organizations keep 20 percent debt and 80 percent of the equity of their total funds for running their businesses. Such type of management is known as leveraged finance.

 


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