HGB accounting is based as usual on the prevailing principle of prudence. Thus, an accounting in equity is only possible if the capital provided has a sufficient liability quality. This is ( as of 1994) only occurs when the following four conditions are met. In the event of liquidation or bankruptcy, a repayment claim must be given only after all other creditors whose invested capital was not classified as equity are served as shown by the Accounting Coach.
An accounting loss incurred on components of shareholders’ equity, is particularly protected from distribution, may take place only if the profit participation certificates (or similar) are used. Remuneration for the capital provided only to the extent that equity does not fall below the specially protected equity components indicated by the Accounting Coach.
The capital must be left for a longer period during which the repayment is impossible for the issuer and the investor. About how long the capital must be made available to be classified as long term, at least five years is required. A qualification of equity in borrowing during the period is not required. So that the remaining term is irrelevant in the categorization in equity or debt.
International Financial Reporting Standards (IFRS ), formerly International Accounting Standards (IAS), will be allocated to equity or debt due to the actual contract. The tendency , IAS 32 – Financial Instruments Disclosure and Presentation, but rather an assignment to loan capital, which can lead to high earnings volatility as shown by the Accounting Coach.
The balance sheet is an accounting financial report which reflects the situation of a company at a given time. The statement of financial position is structured through three concepts assets, liabilities and equity, each account representing different assets. The asset includes all accounts that reflect the values available to the entity. According to the Accounting Coach, all assets are likely to bring money to the company in the future, either through use, sale or exchange.
Net worth is assets less liabilities and represents the contributions of the owners or shareholders plus undistributed profits. The equity also shows the ability of the company to self-finance. The basic accounting equation relates these three concepts. The balance sheet is part of the annual accounts that all societies should develop each year. Other components of the financial statements are diverse.
The balance sheet items are grouped and sorted according to criteria established to facilitate their interpretation and approval. The normally active elements are sorted according to their liquidity, ie depending on the ease with which an asset can be converted into cash, the money deposited in the box is the most liquid out there.
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