Accounting

The accounting system in any given country is one of the key elements of the economic system. It is determined to a significant extent by the level and direction of the economic system's development.

The subject of accounting is the calculation of the financial results of an economic entity's business activity. Accounting is used to describe the transactions entered into by all kinds of organizations.

Accounting can be divided into three phases: capture, processing and communication of financial information.

The first phase, the process of capturing financial information and recording it, is called book-keeping. Accounting includes records analysis and interpretation; it shows the relationship between the financial results and events which have created them.

Accounting is based on the accounting equation, which states that a firm's assets must equal its liabilities plus its owners' equity. Assets and liabilities, profits or losses are listed in financial statements. The two main types of financial statements are the balance sheet and the income statement (profit and loss account). The balance sheet lists a firm's assets, liabilities and owner's equity at a point of time.

Changes in the balance sheet are made according to the principle of double-entry bookkeeping. This principle states that each transaction must be recorded on the balance sheet as two separate entries so that the accounting equation will hold at all times, the totals of each side will always equal one another, and that this will always be true no matter how many transactions are entered into.

Balance sheets are drawn up periodically: monthly, quarterly, half-yearly, annually. The double entry system divides each page into two halves. The left-hand side is called the debit side, while the right-hand side is called the credit side.

The balance sheet shows a lot of useful financial information, but it does not show everything. A firm's sales, costs, and profits for a given period are shown in an income statement.

Microeconomics

The word «micro» means small, and microeconomics means economics in the small. The optimizing behavior of individual units such as households and firms provides the foundation for microeconomics.

Microeconomists may investigate individual markets or even the economy as a whole, but their analyses are derived from the aggregation of the behavior of individual units. Microeconomic theory is used in industrial organization, labor economics, international trade, cost-benefit analysis, and many other economic subfields. The tools and analyses of microeconomics provide a common ground for economists interested in a wide range of problems.

Major distinctions remain between the two major branches of economics. For example, the microeconomist is interested in the determination of individual prices and relative prices (i.e., exchange ratios between goods), whereas the macro-economist is interested more in the general price level and its change over time.

Optimization plays a key role in microeconomics. The consumer is assumed to maximize utility or satisfaction subject to the constraints imposed by income or income earning power. The producer is assumed to maximize profit or minimize cost subject to the technological constraints under which the firm operates. Optimization of social welfare sometimes is the criterion for the determination of public policy.

Opportunity cost is an important concept in microeconomics. Many courses of action are valued in terms of what is sacrificed so that they might be undertaken. For example, the opportunity cost of a public project is the value of the additional goods that the private sector would have produced with the resources used for the public project.

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