Current Account

Examples of Current Account in the following topics:

• Balance of Payments

  • Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.
  • It has to be kept in mind that the balance of payments accounts have different categories for these transactions called the Current Account and Financial Account.
  • Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.
  • When all components of the BOP accounts are included, they must sum to zero with no overall surplus or deficit.
  • While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two.

• Tax Accounting

  • Tax accounting couples legal obligations with financial accounting to ensure adherence to current tax laws.
  • In short, every region has specific tax accounting rules and regulations.
  • Tax accountants act as the bridge between an organization's accounting team and the reporting bodies in the region.
  • As a result, the primary role of a tax accountant is to understand the business' current operating status, distill profitability before tax, and report earnings.
  • This image demonstrates the various responsibilities and perspectives of different forms of accounting (those being tax accounting, managerial accounting and financial accounting).

• Government and Nonprofit Accounting

  • The accounting of activities for accountability purposes.
  • Instead of recognizing revenue when they are earned and expenses when they are incurred, revenue is recognized when there is money available to liquidate liabilities within the current accounting period, and expenses are recognized when there is a drain on current resources.
  • Current fund – unrestricted.
  • This fund is used to account for current assets that can be used at the discretion of the organization's governing board.
  • Current funds – restricted use current assets subject to restrictions assigned by donors or grantors.

• Basic types of accounts

  • Asset accounts: represent the different types of economic resources owned by a business, common examples of asset accounts are cash, cash in bank, equipment, building, inventory, prepaid rent, goodwill, accounts receivable.Assets are usually broken down into three categories: Current assets, fixed assets, and intangible assets.
  • Current assets are assets which could be converted to cash fairly quickly if necessary, certainly in less than a year.Examples of current assets include cash, cash in bank, inventory, prepaid rent, and accounts receivable.Fixed assets are assets of a more permanent nature like manufacturing equipment, buildings owned, and the like.Intangible assets, like goodwill, are monetary values assigned to intangibles like a brand name.It is typically used when accountants need to justify the purchase price of one company by another when the price cannot be justified by the monetary value of the purchased company's assets minus liabilities.Intangible assets are beyond the scope of this chapter as they apply more to larger corporations than to a start-up business.
  • Liability accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.Current liabilities are liabilities which are scheduled to be paid within a short period of time, usually less than a year.Examples of current liabilities include accounts payable to creditors, like suppliers, current amounts payable to employees (payroll) and interest due on short term loans.Long-term liabilities (sometimes called fixed liabilities) are liabilities of a more permanent nature like loans that are not due in the current year (long-term debt), and the like.
  • Typically, accounts in a chart of accounts each have an account number.
  • In the same way, an account number in a chart of accounts uniquely identifies an account and is easier to use in a computerized general accounting system.

• Financial Accounting

  • Financial accounting is a core organizational function in which accountants prepare a variety of documents to inform stakeholders of the financial health of operations.
  • Comparability - Finally, all presented financial statements should align with current best practices in accounting to ensure that the material presented is validly compared to that of other organizations.
  • The items on a balance sheet can range from long term debt to current inventory to dividends to accounts receivable to cash on hand.
  • This is more of a chronological statement, as it takes the previous pay period and the current pay period, and identifies the difference in overall available cash.
  • This is the role of financial accountants.

• Liabilities

  • Examples of current liabilities include wages, taxes, accounts payables, and short-term obligations (such as purchase from suppliers).
  • In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
  • Liabilities in financial accounting need not be legally enforceable, but can be based on equitable obligations or constructive obligations.
  • Current liabilities: these liabilities are reasonably expected to be liquidated within a year.
  • They usually include payables such as wages, accounts, taxes, and accounts payables, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e.g., from purchase of equipment).

• Factoring Accounts Receivable

  • Factoring makes it possible for a business to readily convert a substantial portion of its accounts receivable into cash.
  • Companies factor accounts when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs, such as new orders or contracts.
  • Debt factoring is also used as a financial instrument to provide better cash flow control, especially if a company currently has a lot of accounts receivables with different credit terms to manage.
  • In "maturity" factoring, the factor makes no advance on the purchased accounts; rather, the purchase price is paid on or about the average maturity date of the accounts being purchased in the batch.
  • The reserve, the remainder of the purchase price held until the payment by the account debtor is made.

• Assets

  • In financial accounting, assets are economic resources.
  • Tangible assets contain various subclasses, including current and fixed assets.
  • Current assets include inventory, while fixed assets include such items as buildings and equipment.
  • Examples of intangible assets are goodwill, copyrights, trademarks, patents, computer programs, and financial assets, including such items as accounts receivable, bonds and stocks.
  • Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board.

• Activity Ratios

  • By tracking these metrics over time, and comparing them to the competition, organizations and stakeholders can gauge their competitiveness and overall capacity to leverage assets in the current industry.
  • Understanding how to use these ratios, and what the implications are, is central to financial and managerial accounting at the strategic level.

• Usage of Accounting Information

  • Economic information is generally displayed in the form of financial statements that show the economic resources that a business currently has; the goal of the business is to determine which information is useful to the outside world.
  • This development resulted in the division of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes.
  • Accounting that concentrates on reporting to people inside the business entity is called management accounting.
  • Accounting that provides information to people outside the business entity is called financial accounting.
  • Explain the history of accounting and how accounting information is useful