Accounting
- asset
- something you OWN
- liability
- something you OWE
- fundamental accounting equation
- Assets = liabilites + owners' equity
- rearranged:
Assets - liabilites = owners' equity - cash
- In our presentation, the word "currency" refers to physical cash, i.e. coins and bills.
- In accounting-speak, "cash" refers to Money in the form of account money as well as coins and bills.
- balance sheet
- aka "Statement of Condition"
- shows Assets, Liabilities, and a balancing term: Owners' Equity
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- 2 accounting Methods
- Cash-based accounting
Accrual accounting
revenue and expenses are recorded upon commitment
- The company records a sale whenever it delivers a product or service, not when cash changes hands.
- It records an expense whenever it incurs one, not when it actually writes a check.
- 3 major financial statements
- Income Statement
- shows revenue and expenses over a period of time (year, quarter, month)
- Balance Sheet
- shows financial position (snapshot) at a point in time (e.g. March 31, Dec 31)
- Cash Flow Statement
- cash from operations, in/out
- cash from investing activities (e.g. machines and vehicles sold/purchased)
- cash from financing activities (e.g. shares sold/dividends paid, loans taken/loan payments rec'd)
- GAAP
- Generally Accepted Accounting Principles
- the set of rules accountants follow
- thus statements from different companies are comparable