Accounting Notes Essay

1592 Words Nov 28th, 2014 7 Pages
Four basic financial statements: * Balance Sheet * Income Statement * Statement of Retained Earnings * Statement of Cash Flows

Players: * Investors – trading shares – get dividends * Creditors – trading bonds – get interest rate; risk is less than if you´re an investor * Managers

Financial accounting – provides info for managers and people outside the firm.
Managerial accounting – provides confidential info for internal decision-makers (“private” or internal accounting).

GAAP – Generally Accepted Accounting Principles.
Most countries are converging to US GAAP or IFRS as a generally accepted standards.
Private companies do not file IFRS.

Qualities of accounting * Relevant * Reliable *
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Assets shows where this financing is going.

Assets – properties and rights owned by the company. (economic point of view)
Assets – the use of company funds. (financial point of view)
Liabilities and Shareholders´ equity – debts. The difference lies in who finance the company – shareholders or owners.
Sum of liabilities and shareholders´ equity should be always identical to amount of assets.

FINANCIAL STATEMENTS * Income Statement
Key elements – revenues and expenses. Depending on a relationship between these company reports net income or net loss.
Sample structure:
Revenues
Sales revenue $xx xxx
Expenses
Salary expense $x xxx Utilities expense $x xxx Etc.
Net income (loss) $x xxx

Net income = Total revenues – Total expenses

* Statement of Retained Earnings
There two options when company makes money – 1) pay back the money to the shareholders in the form of dividends; 2) hold the profits to fund business in the form of retained earnings.
If the part of profit goes to retained earnings, the shareholders´ equity increases. Net income, which is not paid to shareholders Retained earnings Dividends paid to shareholders Retained earnings
Time frame – company´s financial year.

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