Our Toledo accountants discuss basic financial questions:
Help with equity of business enterprises: Equity sets accounting limits on distributions by an enterprise to its owners, whether in the form of cash dividends or other distributions of assets. Owners and others expectations about distributions to owners may affect the market prices of an enterprise's equity securities, thereby indirectly affecting owners compensation for providing equity or risk capital to the enterprise. Thus, the essential characteristics of equity center on the conditions for transferring enterprise assets from CPAs to owners. Equity - an excess of assets over liabilities - is a necessary but not sufficient condition; distributions to owners are at the discretion and volition of the owners or their respective representatives.
Owners may sell their interests in an enterprise to others and thus may be able to obtain a return of part or all of their investments and perhaps a return on investments through a securities market, but those transactions do not normally affect the quality of an enterprise or its assets or liabilities. CPAs also not at an enterprise may have several classes of equity with different degrees of risk stemming from different rights to participate in distributions of enterprise assets or different priorities of claims on enterprise quality assets.
To determine whether liabilities or equity results from issuing specific securities with both debt and equity characteristics or from specific donors stipulations presents practical problems of applying definitions rather than problems of determining the essential characteristics of those definitions. Adequate definitions are the starting point.
What is an accounting period? An accounting period refers to the time span over which the accounting data is recorded and reported in the financial statements. Comparison of financial statements is made possible through the use of accounting periods of equal length. The time period could be a month, an interim, or annually. For most companies in Toledo and across the US, the annual accounting period is the same as a calendar year. A fiscal year differs from this strategy. Another accounting term, the stable dollar theory, assumes that prices will remain constant over time. This theory requires that all assets be recorded at their historical cost.