Lesson 3: Accounting Introduction Flashcards
Accounting
identifying, recording, analyzing, summarizing and communicating financial information. Provides insight into financial status of an organization.
Accounting Cycle
- Analyzing Business Transactions:
- Journalize the Transactions
- Post to Ledger Accounts
- Prepare a Trial Balance
- Journalize and Post Adjusting Entries
- Prepare and Adjust Trial Balance
- Prepare Financial Statements (income statement, retained earnings statement, balance sheet, statement of cashflows)
- Journalize and Post Closing Entries
- Prepare a Post-Closing Trial Balance
Financial Statements
written records that convey the business activies and the financial performance of a company.
Income Statement/P&L Statement/Profit and Loss Statement/Statement of Income/Statement of Operations
shows a company’s revenues and expenses over a period of time and finally it’s net income.
- Date range usually listed in the header.
Cash Flow Statement/Statement of Cash Flows
shows inflows and outflows of cash within a business over a period of time
Balance Sheet/Statement of Financial Position
Shows balance of assets, liabilities, of a company in a point in time. (snapshot of financial information)
Liability
Monetary values which a company owes to others (the state of being responsible for something, especially by law)
Equity
Owner/shareholders claim on the company’s assets after the liabilities have been paid
Assets
Anything a company owns that has a monetary value and is expected to generate future economic benefits for the company
Equation for assets?
LIABILITIES + EQUITY = ASSETS
Current Assets
can be liquidated (converted to cash) in less than 1 year
Current Liabilities
due (and have to be paid back) within 1 year
Long Term Assets
cannot be converted to cash in 1 year
Long Term Liabilities
due in more than 1 year
Indicator of a company’s profitability
Income Statement
Net sales
amount of money a company is pulling in from sales
Cost Of Goods Sold (COGS)
direct costs incurred while producing goods
Material Costs (COGS)
costs of materials used to manufacture a product
Labor Costs (COGS)
amount a company pays to its employees to produce this product
Gross Profit
(equation?)
a company’s profit after deducting the costs associated with producing.
Net sales - Cost of goods sold
revenues > expenses
Profitable company
Operating expenses
expenses of business that aren’t included in COGS
Income Before Taxes equation
Gross Profit - Operating Expenses
Net income + equation
total amount a business earned/lost this period
income before taxes - income tax expense
