Business - Accounting

Front 1

Accounting

Back 1

It is the process of recording, analyzing and interpreting the economic activities of a business.

Front 2

Transaction

Back 2

Any activity involving exchange of money.

Front 3

Bookkeeping

Back 3

It is the recording of all business transactions.

Front 4

Double Entry Bookkeeping

Back 4

Each transaction involves two changes.

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Accountants

(3 things)

Back 5

1. They answer financial questions about the business.

2. They keep financial records up-to-date and accurate.

3. They provide financial information in the decision making process.

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Assets

Back 6

-What a business owns (ex: lands, building, cash, etc...)

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Liabilities

Back 7

What a business owes, debts.

Front 8

Owner's Equity

Back 8

- The "net worth" of a business

- The owner's share

- If it's a publicly traded company, it's called shareholder's equity.

Front 9

Accounting Equation

Net Worth

Back 9

Assets - Liabilities = Net Worth

Front 10

Cost Principle

Back 10

Assets are always recorded at the actual amount they cost the business.

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Depreciation

Back 11

Loss in an asset's value over time.

Front 12

Business Transaction

Back 12

Events that cause the financial position of a business to change.

Example: The business buys a new machine.

Front 13

Types of Financial Statements

(3 types)

Back 13

-Balance Sheet

-Income Statement

-Statement of Cash Flow

Front 14

Balance Sheet

Back 14

- It summarizes information about assets, liabilities and owner's equity.

- A snapshot of a business on a given day

a= l+ oe??

Front 15

Balance Sheet Formats

Back 15

Side by Side Format

- Left side (assets) and right side (liabilities and owner's equity)

Up and Down Format

- First assets, second liabilities and third owner's equity.

- Most computer software programs use this method.

Front 16

Balance Sheet

Step 1

Back 16

Fill in a three line heading

- Who? Name of Company

- What? Balance Sheet.

- When? May 30, 2016

Front 17

Balance Sheet

Step 2

Back 17

List the Assets

- According to liquidity (how easily they can be converted into cash)

- For example: cash, account receivable, supplies, parts inventory, equipment, land and building.

Front 18

Balance Sheet

Step 3

Back 18

List the Liabilities

- According to the maturity date (the day by which they must be repaid).

- For example: Accounts payable, bank loan, mortgage payable.

Front 19

Balance Sheet

Step 4

Back 19

Calculate owner's equity

Using balance sheet equation (Assets - liabilities = owner's equity)

Front 20

Balance Sheet

Step 5

Back 20

Put it all together.

Front 21

Balance Sheet Conventions

(4)

Back 21

- To ensure everyone can readily understand a balance sheet, certain conventions of styles are expected.

- Never use abbreviations in a balance sheet

- Never have corrections or changes appear on the final version.

- Always take care to line up figures and dollar signs.

-Underline when totalling a column, and double underline a final total.

Front 22

Balance Sheet Users

(4)

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- Creditors

- Investors

- Government

- Owners

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Income Statement

(2)

Back 23

- It summarizes information about revenue and expenses.

- It indicates profit or loss over a given period of time.

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Revenue

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The money, or the promise of money, received from the sale of goods or services.

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Expenses

Back 25

Things used to help generate revenue: like salaries, advertising expenses, maintenance.

Front 26

Income Statement

Step 1

Back 26

Heading

- Who? Name of Business

- What? Income Statement

- When? For the month ending May 30, 2016

Front 27

Income Statement

Step 2

Back 27

- Organize the revenue section

- For example: repair revenue.

Front 28

Income Statement

Step 3

Back 28

- Organize the expenses section

- For example: salaries, rent, advertising, utilities, insurance.

Front 29

Income Statement

Step 4

Back 29

- Calculate net income or net loss.

Total revenue - total expenses

- If total revenue is more than total expenses = net income

- If total revenue is less than total expenses = net loss

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Matching Principle

Back 30

When expenses are shown on an income statement, they should be on the same monthly statement as the revenue they generated.

Front 31

Difference between Retail and Service

(Income Statement)

Back 31

- The main difference between service and retail is that with retail there is also inventory- the goods that are sold.

Formula

Revenue - cost of goods sold = gross profit

Gross profit - expenses = net income

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Cost of goods sol is calculated by...

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- Starting with the opening inventory

- Adding new purchases made during the period

- Subtracting the inventory remaining at the end of the time period.

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An income statement is usually...

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created before a balance sheet to calculate net income, which gets added to the owner's equity.

Front 34

Cash Flow Statement

(2)

Back 34

- Reports on flow of cash in and out of the business over a period of time.

- Helps estimate the amount of cash coming through a business.

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Sources of Cash Inflow

Back 35

- Sales, interest received from investments, account receivable.

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Sources of Cash Outflow

Back 36

Rent, payroll, account payable, interest payable, insurance.

Front 37

How can a business increase cash flow?

Back 37

Increase the price of goods, etc...

Front 38

Interpreting Financial Statement

Back 38

- How? By comparing financial data over a set period of time.

- Why? To measure financial success of your business. To make recommendations to the owners about future decisions.