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BASIC OF ACCOUNTING - Coggle Diagram
BASIC OF ACCOUNTING
ACCOUNTING
- the process of identifying, measuring and communicating economic information
FINANCIAL STATEMENT
2. A balance sheet
- for the business at the end of the reporting period
Owner's Equity
- The residual interest in the assets of a business after liabilities are deducted
3. A cash flow
- statement for the reporting period
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3 Format of the cash flow statements
- Operating
- Investing
- Financing
Operating
- Cash inflows and outflows caused by core business operations
- The operations component of cash flow reflects how much cash is generated from a company's products or services
Investing
- Changes in equipment, assets or investments relate to cash from investing
Financing
- Changes in debt, loans or dividends are accounted for in cash from financing
1. Profit and loss
- account for the reporting period
- Cost of Goods Sold
- The cost of merchandise sold during the period
- Gross Profit
- The profit of business makes after subtracting all the costs that are related to manufacturing and selling its product or services
Gross profit = sales - cost of goods sold
3.1 Gross Profit Margin
- One indicator of the financial health of the business
Gross profit margin % = (Gross profit / sales) x 100
- Exepenses
- Costs incurred for the purposes of earning income.
- Wages, rent, accounting and legal fees, electricity depreciation, interest paid on loans
- Net Profit
- Calculated by subtracting expenses from the gross profit, showing what the business has earned or lost in a given period of time after both the COGS and operating expenses have been taken into account
- Revenue :
- Total earned from ordinary business operations
- Include sale of goods and services, interest received, dividends, rebates and rent received
ASSETS
- resources with economic value that an individual, corporation or country owns.
example of assets
- cash
- receivables
- supplies
LIALIBILITY
- a company's legal debts or obligations that arise during the course of business operations.
example of liabilities
- accounts payable
- notes payable
- bank loan payable
- mortgage payable
OWNER EQUITY
- depends very much on the context. In finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off.
Owner's Equity = Assets - Lialibilities
EXPENSES
- the economics costs that a business incurs through its operation to earn revenue.
example of Expenses Account
- advertising expense
- supplies expense
- telephone expense
- rent expense
REVENUE
- the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise.
example of revenue accounts
- sales
- rent revenue
- interest revenue
BALANCE SHEET
- provides a good picture of the financial health of a business.
- 3 key section
i) Asset
ii) Liabilities
iii) Owner's equity
balance sheet enables to :
- review level of assets, debt and working capital
- see the relative liquidity of tour business.
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