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Accounting for a New Business 1

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 )

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

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

Learn in Wikipedia

Accounting classes

Accounting class week 7

  • 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 )
Balance sheet terms
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 )



Accounting class week 9

Accounting class week 10

Accounting class week 11

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 )


Accounting class week 12

Joint exam with Business Math 1

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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