Top local CPAs in Pensacola, FL explain concepts of capital maintenance:
According to several of the CPA firms we interviewed in Pensacola, capital maintenance is a concept for maintenance or recovery of cost and is a pre-requisite for separating return on capital from return of capital because only inflows in excess of the amount needed, from an accounting standpoint, to maintain capital are a return on equity. Two major concepts of capital maintenance exist on a CPAs balance sheet, both of which can be measured in units of either money or constant purchasing power. Under the financial capital concept, if the effects of those price changes are recognized, they are called holding gains and losses and are included in return on capital. Under the physical capital concept, those changes would be recognized but called capital maintenance adjustments and would be included directly in equity and would not be included in return on capital on a CPAs balance sheet. Under that accounting concept, capital maintenance adjustments would be a separate element rather than gains and loses.
More basic accounting practices from local CPAs - Characteristics of Expenses
Expenses represent actual or expected cash outflows that have occurred or will eventually occur as a result of the entity's ongoing major or central operations. The assets that flowed out or are used for the liabilities that are incurred may be of various kinds. For example, units of product delivered or produced, employees service is used, kilowatt hours electricity use the light in office building, or taxes on current income all the samples. Similarly, the transactions and events from which expenses arise in the expenses themselves are in many forms that are called by various names, such as cost of goods sold, rent, and wages and salaries, depending on the kind of operations involved in the way expenses are recognized.
Gains: Gains are defined as increases in equity from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners.