5 Flashcards
Definition of Accounting vs Bookkeeping
Accounting: collecting information on financial aspect of business, includes measurement analysis predicting and planning
Bookkeeping: gathering recording and classifying financial info. Does not include preparing info for planning and analysis
Why is Accounting important
must be able to interpret financial info to survive and develop business. the financial info is gathered recorded classified and prepared for analysis in the accounting stage
Bookkeeping for Trades and Crafts vs Companies
primary difference: trades and crafts use cash on hand principle and record financial transactions at the moment where money is exhchanged. Income tax.
Companies use accrual principle and record financial transactions at the moment of the invoice. Corporate tax.
Micro Small and Medium businesses do not have to prepare cash flow statement, but must prepare balance sheet an P&L statement
Definition of an Account, what does it look like, how many does a business have
has a debit and credit side, t account
records information financial information on a specific topic, client, etc. Businesses have many accounts
Main Accounting Books
Journal: chronological book organized per account
General Ledger: snapshot of credit and debit of each account at a single moment in time
Auxiliary books
Types of financial statements
Balance Sheet: Assets = Liabilities + Equity
shows state of assets liabilities and equity on a single day
P&L account: income and expenses over a financial period
Cash flow statement: inflow and outflow of cash, liquidity
Cash Flow Statement Direct Method
Cash flow from business activities
Cash flow from investment activities (other companies shares)
Cash flow from financial activities (loans, dividends, own shares)
Investment vs Cost
Cost: nonreusable, goes in P&L
Investment: reused more than a year, goes in balance sheet first
Profit before tax vs tax base
profit before tax augmented by writeoffs subsidies etc to calculate tax base, which is what the tax percentage is calculated from. net profits are profit before tax - taxes calculated from tax base
