Question

Why it is important to use assets, liabilities, net worth, income and expenses in accounting

Answer 1

Accounting is simply said to be a measurement/process of recording, identifying, summarising and communicating financial information. Accounting gives us all the information about our business which we need to know.
While preparing accounts/financial statements we need to know about certain things which are assets, liabilities, net worth, incomes and expenses. With the help of all these the final accounts are prepared.

So, it can be said that it is important to use assets, liabilities, net worth, incomes and expenses in accounting as these gives us information about :

• Assets : these are the resources which are owned by the business and provides benefits to the business.
• Liabilities : these are the resources which are owed by the business and business is required to pay them off.
• Net worth : is the difference between the assets and liabilities. Net worth shows the position of the busines.  
• Incomes : are all the earnings of the business during an accounting period.
• Expenses : all the payments made by the business during an accounting period.

So, only after considering all the assets, liabilities, net worth, incomes and expenses of business, accounting of such business can be done. All these plays an important role in accounting.