CHAPTER 2 : BASIC OF ACCOUNTING

What is accounting? To help businness maintain accurate and timely records

Assets

  • Resources value that an individual

2 Major asset classes :

  1. Tangible assets (something that can touch)
  2. Intangible assets (something that cannot touch)

Example of assets :
Cash
Receivable
Supplies
Machinery
Lamd
Inventory held for sale

Main financial accounting statement.
(to show the financial position of bussiness)


1)profit and loss
2) balace sheet
3) cash flow

Broad type

management account

ffinancial account

accounting transaction

Liability

  • A company's legal debts or obligation that arise during business operations

Example of liability :
Account payable
Notes payable
Bank loan payable
Mortgage payable

payment of product

invesment

inventory

insurance

Owner equity (Net assets)
The owners claim to company assets after all kf the liabilities have been paid off

Expenses
Costs that a business incurs through it's operations to earn revenue


Example of expenses
Advertising expenses
Supplies expenses
Telephone expenses
Utilities expenses
Wages expenses
Rent expenses
Insurance expenses

stakeholder

INTERNAL

  • director and manager
  • employee
  • share holder

EXTERNAL

  • suppliers
    • goverment
  • customer

Investor

to provide enomous information about a company

Revenue
Amount of money that company receives during a specific period


Example of revenue
Sales
Commission earned
Professional fees earned
Rent revenue
Interest earned

managers

to make important business decisions

PROFIT & LOSS STATEMENT

Balance sheet
Statement of assets , liabilities and. capital of a business.
Financial statements used to report on the financial position of the business.to the owner and stakeholders such as banks and investors.


3 keys section

  1. Asset
  2. Liabilities
  3. Owner's equity

an entry for revenue and subtract from revenue the cost of running the bussiness including cost of goods sold, operating expenses, tax expense and interest expense

main component of profit and loss

  • revenue
  • cost of goods sold
  • gross profit
  • expenses
  • net profit
  1. Revenue - sale or total earned
  2. Cost of goods sold - cost of merchandise sold during period
  3. Gross profit - income that is left after production costs have been subtracted from revenue
  4. Expenses - cost incurred for the purpose of earning income
  5. Net profit - To calculate net profit for a venture (such as a company, division, or project)

Cash flow
Report the amount of cash collection and paid out by a company


Cash inflow
Sell good or service
Sell others assets
Receive cash from investment


Cash outflow
Pay operating
Expand operations
Pay owner