Understanding Accounting and Financial Information

Managerial accounting provides information and analysis to managers inside the organization to assist them in decision making.

Certified management accountant is a professional accountant that has passed a qualifying exam

Annual report is a yearly statement of the financial condition, progress, and expectations of an organization.

Private accountants works for only one firm, government agency, or nonprofit organization.

Public accountant provides accounting services to individuals or businesses

Auditing: Reviewing and evaluating the information used to prepare a company’s finan- cial statements

Independent audit is an evaluation and unbiased opinion about the accuracy of a company’s financial statements.

Tax accountant is trained in tax law and is responsible for preparing tax returns, or developing tax strategies.

Government and not-for-profit accounting supports organizations whose purpose is not generating a profit, but helping tax payers

Not-for-profit organizations often require accounting professionals.

Accounting cycle is a six-step procedure that results in the preparation and analysis of the major financial statements

Bookkeeping, the recording of business transactions, is a basic part of financial reporting.

Bookkeepers then record financial data from the original transaction documents into a record book or computer program called a journal.

Double-entry bookkeeping is when transactions are written in two places

Trial balance is a summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.

Financial Statement: 1. The balance sheet, which reports the firm’s financial condition on a specific date.

  1. The income statement summarizes revenues, cost of goods, and expenses for a specific period and highlights the total profit or loss the firm experienced during that period.
  1. The statement of cash flows, which provides a summary of money coming into and going out of the firm. It tracks a company’s cash receipts and cash payments.

Fundamental accounting equation is the basis for the balance sheet.

Balance sheet is the financial statement that reports a firm’s financial condition at a specific time.

liquidity
The ease with which an asset can be converted into cash.

Assets

  1. Current assets are items that can or will be converted into cash within one year. They include cash, accounts receivable, and inventory.
  1. Fixed assets are long-term assets that are relatively permanent such as land, buildings, and equipment.
  1. Intangible assets are long-term assets that have no physical form but do have value. Patents, trademarks, copyrights, and goodwill are intangible assets.

Liabilities

  1. Accounts payable are current liabilities or bills the company owes others for merchandise or services it purchased on credit but has not yet paid for.
  1. Notes payable can be short-term or long-term liabilities that a business promises to repay by a certain date.
  1. Bonds payable are long-term liabilities; money lent to the firm that it must pay back.

Operating expenses: rent, salaries, supplies, utilities, and insurance

Cash flow is simply the difference between cash coming in and cash going out of a business.