accounting and financial statements

ACCOUNTINGACCOUNTING

Accounting:Accounting:

Keeping financial Keeping financial records,recording income and records,recording income and expenditure,valuing assets and expenditure,valuing assets and liabilities,and so onliabilities,and so on

What are assets?What are assets?

Things that make you money; Things that make you money; Assets include current assets like: Assets include current assets like: cash in bank, savings, inventory, cash in bank, savings, inventory, prepaid expenses (like prepaid expenses (like insurance), accounts receivable insurance), accounts receivable (money owed to you) and fixed (money owed to you) and fixed assets.assets.

What are fixed assets?What are fixed assets?

Fixed assets are the more Fixed assets are the more expensive, usually tangible items expensive, usually tangible items that you purchase for your that you purchase for your business (like computers, desks, business (like computers, desks, equipment, etc.)equipment, etc.)

What are liabilities?What are liabilities?

Liabilities are: the bills that you Liabilities are: the bills that you owe, any loans and credit owe, any loans and credit cards for your business.cards for your business.

Historical cost:Historical cost:

An accounting principle An accounting principle requiring all financial requiring all financial statement items to be based statement items to be based on original cost.on original cost.

Auditing:Auditing:

Inspection and evaluation of Inspection and evaluation of accounts by a second set of accounts by a second set of accountantsaccountants

What are the three basic financial What are the three basic financial statements that you need to understand statements that you need to understand

to run your business?to run your business?

The first of these forms is the Balance The first of these forms is the Balance Sheet. It is a comparison of your assets Sheet. It is a comparison of your assets (things that make you money) on the left, (things that make you money) on the left, and liabilities (things that you owe) and and liabilities (things that you owe) and equity (the net worth of your business).equity (the net worth of your business).

What is an Income Statement?What is an Income Statement?

Income statement is a Income statement is a snapshot of your business snapshot of your business activity at a current point in activity at a current point in time time

What is the cash flow statement?What is the cash flow statement?

The cash flow statement isThe cash flow statement is the the third financial form that you third financial form that you should prepare on a regular basis, should prepare on a regular basis, at least weekly.at least weekly.

A financial statement that summarizes a A financial statement that summarizes a company's assets, liabilities company's assets, liabilities

and shareholders' equity at a specific and shareholders' equity at a specific point in time. These three balance sheet point in time. These three balance sheet segments give investors an idea as to segments give investors an idea as to what the company owns and owes, as what the company owns and owes, as

well as the amount invested by the well as the amount invested by the shareholders.shareholders.

The balance sheet must follow The balance sheet must follow the following formula:the following formula:

Assets = Liabilities + Assets = Liabilities + Shareholders' EquityShareholders' Equity