Notes On Financial Accounting

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Financial Accounting
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Accounting

Sys tem that collects and proces s es
(analyzes , meas ures , and records ) financial information about an org anization and reports that information to decis ion makers .

Accounting entity Is the org anization for with financial data are to be collected.

The four bas ic s tatements :

1. Balance Sheet
2. Income Statement
3. Statement of Retained Earning s
4. Statement of Cas h flows

Balance Sheet

Reports the amount of as s ets , liabilities and s tockholders ' equity of an accounting entry at a point in time.

Income
Statement

Reports the revenues les s the expens es of the accounting period.

Statement of
Retained
Earning s

Reports the way that net income and the dis tribution of dividends affected the financial pos ition of the company during the accounting period.

Statement of
Cas h F lows

Reports inflows and outflows of cas h during the accounting period in the categ ories of operating , inves ting , and financing .

Bas ic
Accounting
Equation

As s ets = Liabilities + Stockholders ' Equity

9.

As s ets

Are the economic res ources owned by the company. Each of thes e economic res ources is expected to provide future benefits to the firm.

10 .

Liabilities

Are the company's debts or oblig ations .
Which will be paid with as s ets or s ervices .

Stockholders '
Equity
(Owners '
Equity)

Indicates the amount of financing provided by owners of the bus ines s and earning s . Is the s um of the contribute capital + the retained earning s .

Accounting
Period

Is the time period cover by the financial s tatements .

Elements of the Income
Statement

Revenues , Expens es and Net Income.

14.

Revenues

Earning s from the s ale of g oods or s ervices to cos tumers . Revenues are reported whether or not have yet been paid for. 15 .

Expens es

Repres ent the dollar amount of res ources the entity us ed to earn revenue during the period. 1.

2.

3.

4.

5.

6.

7.

8.

11.

12 .

13 .

Net
Income
("the bottom line")

Is the exces s of total revenues over total expens es .

Net Los s

If total expens es exceed total revenues .

Retained
Earning
Equation

Ending Retained Earning s = (Beg inning of
Retained Earning s + Net Income) - Dividends

The Cas h
F low
Statement
Equation

+/- Cas h flow from Operating Activities (CFO)
+/- Cas h flow from Inves ting Activities (CFI)
+/- Cas h flow from Financing Activities (CFF)
---------------------------------------Chang e in Cas h

Cas h F low from Operating
Activities , and examples

CFO- Are cas h flow that are directly related to earning income. Example, collecting cas h from cos tumers , pay s alaries , pay bills , pay to s uppliers .

Cas h F low from Inves ting
Activities , and examples

CFI- Are cas h flow related to the acquis ition or s ale of the company's productive as s ets .
Example, the purchas e of additional equipment. Cas h F low from F inancing
Activities , and examples

CFF- Are cas h flow directly related to the financing of the enterpris e its elf. Example, the payment of money to inves tors and creditors .

23.

Notes

"Footnotes " provide s upplemental information about the financial condition of a company.

2 4.

GAAP

Generally Accepted Accounting Principles , are the meas urement rules us ed to develop the information in financial s tatements .

25.

SEC

Security and Exchang e Commis s ion, is the U.S g overnment ag ency that determines the financial s tatements that public companies mus t provide to s tockholders , and the rules that they mus t us e in producing thos e s tatements .

26.

F ASB

Financial Accounting Standards Board, is the private s ector body g iven the primary res pons ibility to work out the detailed rules that become GAAP.

2 7.

Audit

Is an examination of the financial reports to ens ure that they repres ent claim and comfort with GAAP.

16 .

17.
18 .

19 .

20.

2 1.

22.

28.

29.

30.

3 1.

32.

33.

3 4.

35.

36.

3 7.

38.

39.

40 .

Primary
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