User:Jukeboksi/BBA studies/Accounting

“Accounting ( verb ) or accountancy ( noun ) is the process of communicating financial information about a w:business entity to users such as shareholders and managers.”

~ Wikipedia on accounting

“Laskentatoimi on toimintaa, jonka tehtävänä on kuvata rahaprosessia, kerätä, rekisteröidä ja analysoida yrityksen tai muun organisaation toimintaa kuvaavia taloudellisia laskelmia.”

~ Suomenkielinen Wikipedia on laskentatoimi

Definition of accounting and accountacy

Accounting ( verb ) or accountancy ( noun ) is the process of communicating financial information about a w:business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable.

The principles of accountancy are applied to business entities in three divisions of practical art, named

1. accounting (w:fi:laskentatoimi ) which is classically split to ( financial and managerial accounting )
2. bookkeeping ( w:fi:kirjanpito ) and
3. auditing ( w:fi:auditointi, mahd. w:fi:tilintarkastus ). ( Wikipedia )

Accounting for a New Business 1

Terminology

Double-entry bookkeeping, credit and debit

In w:double-entry bookkeeping a minimum of 2 w:ledger accounts are touched, one w:debited and another w:credited with every action recorded.

Balances and flow statements

• For every fiscal year a business must produce a w:annual report which contains ( in w:Finland )
  • the annual w:financial statement ( w:fi:Tilinpäätös ) which contains naturally
    • the w:balance sheet ( main document of accounts, w:fi:tase )
    • the w:income statement ( main flow document, w:fi:tuloslaskelma )
    • the attachments for balance sheet and income statements w:fi:liitteet
    • the w:statement of changes in equity (SOCE)
  • Textform description of businesses activities ( w:fi:toimintakertomus )

Income statement or profit and loss statement

Mnemonic: "The w:income statement describes the income possibilities of the w:entrepreneur with 100% of shares not the income of the business, that's called the w:top line and is only small part of the whole thing."

An w:income statement (also referred to as profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of operations) is a company's w:financial statement that indicates how the w:revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the w:net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or the "bottom line"). It displays the revenues recognized for a specificperiod, and the w:cost and w:expenses charged against these revenues, including w:write-offs (e.g., w:depreciation and w:amortization of various w:assets) and w:taxes. The purpose of the income statement is to show managers and w:investors whether the company made or lost money during the period being reported. ( Wikipedia )

Formula for income statement

incoming w:revenue == w:top line == w:turnover == w:income == w:cash flow

minus outgoing w:expenses

equals w:net income == The w:bottom line == w:net profit == w:net earnings

Example for small scale import/export business income statement

an example of an income statement for a really small business involved in international trade

'+ w:Revenue

- w:Fixed costs (

- w:Personel costs

- w:Facilities, w:office and w:bookkeeping and w:accounting w:costs )

- w:Variable costs (

- w:Unit price x lot size + w:VAT

- Duties and w:tariffs or in case of w:single-market or w:free trade area no need

- w:Logistics and w:warehousing

- w:distribution costs

)

________________________________

== w:Net income

Balance sheet

To understand what's going on with a w:business in addition to having an w:income statement one must also have knowledge of where the capital is, what is it's cost and it's payoff i.e. the w:Balance sheet, then you can calculate all sorts of fun w:metrics like w:Return on equity and w:return on investment etc.

In w:financial accounting, a w:balance sheet or statement of financial position is a summary of the financial balances of a w:sole proprietorship, a business partnership, a w:corporation or other business organization, such as an LLC or an w:LLP. w:Assets, liabilities and w:ownership equity are listed as of a specific date, such as the end of its w:financial year. A balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic w:financial statements, the balance sheet is the only statement which app

Accounting classes

Accounting class week 7

• w:Financial accountancy (or financial accounting) is the field of w:accountancy concerned with the preparation of w:financial statements for decision makers, such as stockholders, suppliers, w:banks, employees, w:government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either w:nominal monetary units or w:units of constant purchasing power. ( Wikipedia )

• Management accounting or w:managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. ( Wikipedia )

• w:Income statement (also referred to as profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of operations)is a company's w:financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or the "bottom line"). ( Wikipedia )

• A w:Balance sheet or statement of financial position ( in w:financial accounting ) is a summary of the financial balances of a w:sole proprietorship, a business partnership, a w:corporation or other business organization, such as an LLC or an w:LLP. w:Assets, liabilities and w:ownership equity are listed as of a specific date, such as the end of its w:financial year. A balance sheet is often described as a "snapshot of a company's financial condition". ( Wikipedia )

Balance sheet terms

• w:Assets == w:current assets + w:non-current assets

A w:current asset is an w:asset which can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include w:cash, w:cash equivalents, short-term investments, w:accounts receivable, w:inventory and the portion of prepaid liabilities which will be paid within a year. ( Wikipedia )

• Liabilities == w:Current liabilities + w:non-current liabilities

• w:Double-entry accounting ( or double-entry w:bookkeeping system ) is a set of rules for recording financial information in a w:financial accounting system in which every transaction or event changes at least two different nominal w:ledger accounts.

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Accounting class week 9

• Team quiz on new terminology ( w:Category:Accounting terminology )
• w:Assets
• w:Liabilities
• w:Equity (finance)

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Accounting class week 10

• w:Accrual (accumulation) of something is, in w:finance, the adding together of w:interest or different w:investments over a period of time. It holds specific meanings in w:accounting, where it can refer to accounts on a w:balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These types of accounts include, among others, w:accounts payable, w:accounts receivable, goodwill, w:deferred tax liability and future interest expense. ( Wikipedia )

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Accounting class week 11

• w:VAT accounting

• w:VAT vs. w:sales tax ( not the same thing )

• w:Accrual

Accrual (accumulation) of something is, in w:finance, the adding together of w:interest or different w:investments over a period of time. It holds specific meanings in w:accounting, where it can refer to accounts on a w:balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These types of accounts include, among others, w:accounts payable, w:accounts receivable, goodwill, w:deferred tax liability and future interest expense. ( Wikipedia )

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Accounting class week 12

Joint exam with Business Math 1

lies to a single point in time of a business' calendar year. ( Wikipedia )

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Accounting for a New Business 2

Course consists of mostly w:Managerial accounting and w:cost accounting

Topics covered:

• w:Forecasting w:revenues, w:sales w:budgeting
• w:Pricing of products and services
• Estimation of w:operational costs
• w:Profitability, feasible w:business plan
• Required w:investments and w:working capital
• w:Bank loans and other w:financial instruments
• Annual percentage rate of charge for w:loans and w:credits

Accounting 2 class week 14

Topics: Financial flows

• w:cost-volume-profit analysis

in managerial economics, is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions. ( Wikipedia )

• w:Contribution margin

In w:cost-volume-profit analysis, a form of w:management accounting, contribution margin is the marginal profit per unit sale. It is a useful quantity in carrying out various calculations, and can be used as a measure of w:operating leverage. Typically, high contribution margins are prevalent in the labour-intensive tertiary sector while low contribution margins are prevalent in the capital-intensive industrial sector.n ( Wikipedia )

• w:Break-even (or break even) is the point of balance between making either a profit or a loss. The term originates in finance, but the concept has been applied widely since. ( Wikipedia )

• Margin of safety represents the strength of the business. It enables a business to know what is the exact amount it has gained or lost and whether they are over or below the break even point. ( Wikipedia )

• w:Operating leverage is a measure of how revenue growth translates into growth in operating income. Leverage, and of how risky (volatile) a company's operating income is. ( Wikipedia )

Homework: ex. 4,5,6,7

Accounting 2 class week 16

• w:Pricing

Long-run vs. short-run pricing approaches

• w:Target costing or target pricing is a w:pricing method used by firms. It is defined as "a cost management tool for reducing the overall cost of a product over its entire life-cycle with the help of production, engineering, research and design". A target cost is the maximum amount of cost that can be incurred on a product and with it the firm can still earn the required w:profit margin from that product at a particular selling price. ( Wikipedia )

• w:Cost-plus pricing is a pricing method used by companies to maximize their rate of returns. ( Wikipedia )

Accounting 2 class week 17

• w:Operating leverage is a measure of how revenue growth translates into growth in w:operating income. Leverage, and of how risky (volatile) a company's operating income is.

• The w:current ratio is a w:financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's w:current assets to its w:current liabilities. ( Wikipedia )

• The Acid-test or w:quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those w:current assets that presumably can be quickly converted to cash at close to their w:book values. ( Wikipedia )

• w:Return on investment (ROI) is the concept of an w:investment of some resource yielding a benefit to the investor. As a performance measure, it is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ( Wikipedia )

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Learn in Wikipedia

• w:Category:Accounting terminology

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Further learning

Business and investment analyses:

1. Financial statement analysis – the analysis of the accounts and the economic prospects of a firm
2. Fundamental analysis – a stock valuation method that uses financial analysis
3. w:Technical analysis – the study of price action in securities markets in order to forecast future prices
4. Business analysis – involves identifying the needs and determining the solutions to business problems
5. Price analysis – involves the breakdown of a price to a unit figure
6. Market analysis – consists of suppliers and customers, and price is determined by the interaction of w:supply and demand ( Wikipedia )

build upon understanding of accounting and business math terminology and procedures.

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