Accounting and Financial Statements
Accounting and Financial Statements
The Nature of Accounting
is the recording, measurement, and interpretation of financial
Certified public accountants (CPAs)
are individuals who have been
certified by the state in which they practice to provide accounting services
ranging from the preparation of financial records and the filing of tax returns
to complex audits of corporate financial records.
are employed by corporations, government agencies,
and other organizations to prepare their financial statements.
Private accountants may become
certified management accountants
passing a rigorous examination; they have some degree of managerial
Accounting / Bookkeeping?
is more narrow and mechanical than accounting and is typically
limited to the routine, day-to-day recording of business transactions.
refers to the internal use of accounting statements
by managers in planning and directing the course of the organization.
is the movement of money through a business on a daily, weekly,
monthly, or yearly basis.
is an internal financial plan that forecasts expenditures and
revenues over a set period of time.
These financial statements become the basis for the information provided in
a corporation’s official
, a summary of the firm’s financial
information, products, and growth for stockholders and potential investors.
Ratio Analysis: Analyzing Financial Statements
refers to calculations that measure an organization’s financial health,
bringing the information from the balance sheet and income statement into sharper
Asset utilization ratios
Debt utilization ratios
Per share data
The Accounting Process
Transactions are then posted to a
, a book or computer
program with separate files for each asset, liability, or owners’ equity
is the process of collecting, recording, and analyzing raw datas, and it occurs constantly through the business’s life.
is the system of recording and classifying business
transactions in accounts that maintain the balance of the accounting equation.
Assets = Liabilities + Owners’ equity.
is assets minus liabilities and includes all of the funds that have
ever been contributed to the company that never have to be paid back.
are debts the firm owes to others.
are a firm’s economic resources or items of value that it owns.
is a financial statement showing the profitability of a firm
over a period of time.
is the total amount of money received (or promised) from the sale
of goods or services, as well as from other business activities such as rental
of property and investments.
Gross income or profit
is equal to revenues minus the cost of goods sold.
Cost of goods sold
(CGS) is the amount of money a firm spent to buy or
produce the products it sold during the period to which the income statement
applies. (CGS = Beginning inventory + Interim purchases - Ending
are the costs incurred in the daily operation of a business.
the process of spreading the
costs of long-lived assets over the total number of accounting periods in
which they are expected to be used.
is the profit (or loss) after all expenses, including taxes, have been
deducted from revenue.
presents a “snapshot” of a company’s financial position at a given
, also called short-term assets, are those that are used or
converted into cash within a year; they include cash, temporary investments,
(money owed the company by its customers), and
are amounts owed to a company’s suppliers for goods
and services purchased with credit.
Current (short-term) liabilities
include a firm’s financial obligations to
short-term creditors, which must be repaid within a year; long-term liabilities
have longer repayment terms.
These accounts may be consolidated into an
representing all unpaid financial obligations incurred by the firm.
statement of cash flows
explains how the company’s cash changed from the
beginning of the accounting period to the end.