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Managing Financial Resources - Coggle Diagram
Managing Financial Resources
Accounting
Accounting: the recording, classifying, summarizing, and interpreting of financial events and transactions that affect an organization.
Accounting System: The methods we use to record and summarize accounting data into reports.
Managerial Accounting: provides information and analyses to managers within the firm to assist them in decision making.
Financial Accounting: provides information and analyses to external users of data such as creditors and lenders
Financial Statements
-Balance sheets: A balance sheet reports the financial position of a firm on a particular day. The equation consists of: Assets= Liabilities + Owners’ equity.
-Income Statements: It reports revenues, costs, and expenses for a specific period of time. There are 3 equations:
Revenue - Cost of goods sold = Gross margin
Gross margin - Operating expenses = Net income before taxes
Net income before taxes - Taxes = Net income (or net loss)
-Statement of Cash Flow: Cash flow is the difference between cash receipts and cash disbursements. The statement reports cash receipts and disbursements related to the firm’s major activities: operations, investments, and financing.
Disciplines In Accounting
Auditors: They review and evaluate the standards used to prepare a company’s financial statements.
-An independent audit is conducted by a public accountant and is an evaluation and unbiased opinion about the accuracy of a company’s financial statements.
Private Accountant V Public Accountant:
-A public accountant provides services for a fee to a variety of companies, whereas a private accountant works for a single company.
-Private and public accountants do essentially the same things with the exception of independent audits. -Private accountants do perform internal audits, but only public accountants supply independent audits.
Accounting Cycle
Step 1: Analyzing documents
Step 2: Recording information into journals
Step 3: Posting that information into ledgers
Step 4: Developing a trial balance
Step 5: Preparing financial statements, the balance sheet, income statement, and statement of cash flows
Step 6: Analyzing financial statements
Journals: the first place bookkeepers record transactions. Bookkeepers then summarize journal entries by posting them to ledgers.
Ledgers: specialized accounting books that arrange the transactions by homogenous groups, or in other words; accounts.
Bookkeeping V Accounting
-Bookkeeping is part of accounting and includes the systematic recording of data.
-Accounting includes classifying, summarizing, interpreting, and reporting data to management
Computers In Accounting
-Computers can record and analyze data and provide financial reports.
-Software can continuously analyze and test accounting systems to be sure they are working correctly.
-They help in decision making process by providing appropriate information, however, financial decisions cannot be made by computers.
-Accounting applications and creativity are still human functions.
Ratios
4 Categories:
-Liquidity ratios
-Leverage ratios
-Profitability ratios
-Activity ratios