Case___Long_Term_Liabilities_and_Equity___Case_15.7.docx.pdf (1).pdf

theory would be best applied for following equity situations, single proprietorship, partnership,

financial institutions, consolidated statements, and estate accounting. And finally, this paper will

conclude will a Biblical perspective on the accounting matter.

In accounting there are three theories by which we account for equity, the three approaches

that we will look at are the proprietary theory, the entity theory, and the fund theory. Under the

proprietary theory the company is owned by either a specific person or group such as a sole

proprietor or limited liability company (Schroeder, R. G., et al, 2020). In this theory the owner is

brought to center stage as both assets and liabilities of the company belong to the owners (Wolk,

H. I., et al., 2017). Meaning when the company makes revenues these will immediately increase

The entity theory came from the rise in corporation structures where there was a separation

of ownership and management (Schroeder, R. G., et al, 2020). At the center of this theory is that

creditors and stockholders provide resources to the company and the company exist as a separate

entity apart from these groups (van Mourik, C., 2010). In the entity theory both the assets and

liabilities belong to the company (van Mourik, C., 2010). In this instance as the company makes

revenue is the property of the company or entity and not the owner. The same is true for the

expenses, as expenses are incurred, they become the obligations of the company to pay. When it

comes to the any profits that are made, these belong to the stockholders. Only when a dividend is

declared are these profits disbursed to the stockholders (Schroeder, R. G., et al, 2020). When it

comes to the balance sheet equations for this theory is looks like this instead Assets = Equities

where equities includes liabilities (Wolk, H. I., et al., 2017).

he felt the proprietary theory and the entity where too simple for the modern corporate world

(Wolk, H. I., et al., 2017). In this theory, he argued that a corporation represented the people

rather than the corporation being a person (Schroeder, R. G., et al, 2020). For this theory the

(Schroeder, R. G., et al, 2020).

be applied to the following examples. For a single proprietorship, the proprietary theory is most

applicable because the owner is the sole decision-maker (Schroeder, R. G., et al, 2020).

Traditional in a single proprietorship there is only one person who owns the company, they are

the sole key player in the company, and there for all the assets and liabilities fall to there. For a

partnership the theory that makes the most sense would be the proprietary theory. In this

instance, like in single proprietorship, they are the sole key players in a company. It is important

to remember that this is different than the legal set up of a company, this theory is for accounting

purposes only. For a Financial institution or banks the theory that would make the most sense

would also be the entity theory. I assume this is a large publicly held company where the

stockholders provide resources to the in exchange for “rights relative to receiving declared

dividends, voting at the annual corporate meeting, and sharing in net assets after all other claims

have been met, if the firm is dissolving” (Wolk, H. I., et al., 2017). For a consolidated statement,

the theory that makes the most sense would be the entity theory. This is the only theory that

would recognize the consolidated statement as separate from the firm or entity. For estate

account the theory that makes the most sense would be the fund theory. As noted above “a fund

is simply a group of assets and related obligations devoted to a particular purpose, which may or

may not be that of generating income” (Wolk, H. I., et al., 2017). The purpose of estate is to

handle the assets of a person after their passing, weather that is to disperse them to the correct

are not everything, as we must not let them blind us. As the Bible states “For you say, I am rich,

I have prospered, and I need nothing, not realizing that you are wretched, pitiable, poor, blind,

and naked” (English Standard Version Bible, 2016, Revelation 3:17). As accountants we might

find ourselves working with clients who only care about the bottom line, or we might find

ourselves falling into that trap if we own our own company. As followers of God’s teachings, we

need to take a step back and try to remember that while it is important in the business world, we

must not lose our spiritual selves to it. We are first children of God and need to stay true to his

message. We do not want to let our prosperity blind us from God’s words. We need to be

balanced and focused on our business and work, while staying true to our faith.