Accounting

w:Accountancy
Key concepts
w:Accountant w:Accounting period w:Accrual w:Bookkeeping Cash and accrual basis Capital maintenance in units of constant purchasing power w:Cash flow forecasting w:Chart of accounts Convergence Journal Special journals w:Cost of goods sold Credit terms w:Debits and credits Double-entry system w:Mark-to-market accounting FIFO and LIFO GAAP / IFRS w:Management Accounting Principles w:General ledger Goodwill w:Historical cost w:Matching principle w:Revenue recognition w:Trial balance
Fields of accounting
Cost Financial Forensic Fund Management Tax (U.S.) Throughput
w:Financial statements
w:Balance sheet w:Cash flow statement w:Income statement w:Statement of retained earnings Notes w:Management discussion and analysis w:XBRL
w:Auditing
w:Auditor's report w:Control self-assessment w:Financial audit GAAS / ISA w:Internal audit w:Sarbanes–Oxley Act
Accounting qualifications
CIA CA AIA CPA CCA CGA CMA CAT AAT CFE CICA ACCA CIMA CGMA IPA

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 ( verb ) or accountancy ( noun )

Accounting, or accountancy, is the measurement, processing and communication of financial information about economic entities. ( Wikipedia )

Or old wikipedia: Accouting 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. ( Wikipedia )

Bookkeeping, in business, is the recording of financial transactions, and is part of the process of accounting.

Transactions include purchases, sales, receipts and payments by an individual or organization. ( Wikipedia )

Audit is a planned and documented activity performed by qualified personnel to determine by investigation, examination, or evaluation of objective evidence, the adequacy and compliance with established procedures, or applicable documents, and the effectiveness of implementation. ( Wikipedia )

w:Bookkeeping
Key concepts
Daybooks Double-entry system w:General ledger T Accounts w:Trial balance Journal w:Debits and credits w:Chart of accounts w:Petty cash w:Imprest system w:Bank reconciliation w:Ledger Single-entry system w:Bookkeeper w:Assets w:Liabilities Equity w:Income w:Expenses w:Depreciation w:Accruals Prepayments VAT/GST
w:Financial statements
w:Balance sheet w:Income statement
Related professions
w:Accountant w:Accounting technician Accounts clerk

Accounting for a New Business 1

Accounting lesson 1 Double-entry bookkeeping, credit and debit

• w:Double-entry accounting ( or double-entry w:bookkeeping system w:fi:Kahdenkertainen kirjanpito) 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. ( Wikipedia )

• Debits and credits (abbreviated Dr and Cr, respectively) are entries made in account ledgers to record changes in value resulting from business transactions. Generally speaking, the source account for the transaction is credited (that is, an entry is made on the right side of the account's ledger) and the destination account is debited (that is, an entry is made on the left side). Total debits must equal total credits for each transaction; individual transactions may require multiple debit and credit entries to record. ( Wikipedia )

• 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 )

Balances and flow statements

( w:fi:XYZ )

• For every fiscal year ( w:fi:Tilikausi )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

• 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 )

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 specific period, 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

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

• 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

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 )

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Accounting class week 9

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

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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:fi:Arvonlisävero )

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

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Accounting class week 12

Joint exam with Business Math 1

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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 ( w:fi:Katetuottolaskenta )

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 ( w:fi:Velkavipu ) 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 ( w:fi: Maksuvalmiussuhde ) 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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Managerial Accounting

1. lesson: Cost behaviour and cost objects
2. lesson: Job costing and overheads
3. lesson: Activity based costing
4. lesson: Cost-volume-profit analysis
5. lesson: Master budgets and operational budgets
6. lesson: NO LESSON
7. lesson: Short term business decisions

Lesson 1 Cost behaviour and cost objects

• A Cost object is a tangible input for a product manufactured/service provided, like labor or material. ( Wikipedia )

• Managerial accounting vs. financial accounting - differences and characteristics listed in hand-out

• Proper financial accounting is GAAP + IFRS compliant and is CPA audited

Certified Public Accountant (CPA) is the statutory title of qualified accountants in the United States ( Wikipedia )

• Generally accepted accounting principles (GAAP) refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements. ( Wikipedia )

• International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. ( Wikipedia )

• Inventory or stock refers to the goods and materials that a business holds for the ultimate purpose of resale (or repair)

• w:Inventory management software is a computer-based system for tracking inventory levels, orders, sales and deliveries. ( Wikipedia )

• Working capital or operating capital is a financial metric which represents operating liquidity| available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Gross working capital equals to current assets. Net working capital (NWC) is calculated as current assets minus current liabilities. ( Wikipedia )

Lesson 2 Job costing and overheads

• In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. ( Wikipedia )

• Job costing involves the calculation of costs involved in a construction "job" or the manufacturing of goods done in discrete batches. These costs are recorded in ledger accounts throughout the life of the job or batch and are then summarized in the final trial balance before the preparing of the job cost or batch manufacturing statement. ( Wikipedia )

• An overhead or overhead expense refers to an ongoing expense of operating a business; it is also known as an "operating expense". Examples include rent, gas, electricity, and labour burden. The term overhead is usually used when grouping expenses that are necessary to the continued functioning of the business but cannot be immediately associated with the products or services being offered (i.e., do not directly generate profit|s). ( Wikipedia )

• Costs:

• Direct costs are costs that can easily be associated with a particular cost object.( Wikipedia on variable cost )
• Indirect costs are costs that are not directly accountable to a cost object (such as a particular project, facility, function or product). Indirect costs may be either fixed or variable. Indirect costs include administration, personnel and security costs. These are those costs which are not directly related to production. Some indirect costs may be overhead. But some overhead costs can be directly attributed to a project and are direct costs.
• Unallocated cost

• Cost pools is an accounting term that refers to groups of accounts serving to express the cost of goods and service allocatable within a business or manufacturing organization. The principle behind the pool is to correlate direct and indirect costs with a specified cost driver, so to find out the total sum of expenses related to the manufacture of a product. ( Wikipedia )

• Cost allocation is a process of providing relief to shared service organization's cost centers that provide a product or service. In turn, the associated expense is assigned to internal clients' cost center|s that consume the products and services. ( Wikipedia )

• Manufacturing overhead costs (MOH cost) are all manufacturing costs that are related to the cost object (work in process and then finished goods) but cannot be traced to that cost object in an economically feasible way. ( Wikipedia )

Examples include supplies, indirect materials such as lubricants, indirect manufacturing labor such as plant maintenance and cleaning labor, plant rent, plant insurance, property taxes on the plant, plant depreciation, and the compensation of plant managers.

This cost category is also referred to as Factory overhead cost (FO cost). ( Wikipedia )

• A pre-determined overhead rate or POHR is the rate used to apply manufacturing overhead to work-in-process inventory.

The pre-determined overhead rate is calculated before the period begins. The first step is to estimate the amount of the activity base that will be required to support operations in the upcoming period.

The second step is to estimate the total manufacturing cost at that level of activity.

The third step is to compute the predetermined overhead rate by dividing the estimated total manufacturing overhead costs by the estimated total amount of cost driver or activity base.

Common activity bases used in the calculation include direct labor costs, direct labor hours, or machine hours. ( Wikipedia )

• Direct materials cost + direct labor cost + manufacturing overhead -> work in progress -> finished goods -> cost of goods sold

Lesson 3 Activity based costing

Recap from#Accounting 2 class week 14

Activity based costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs compared to conventional costing. ( Wikipedia )

CIMA (Chartered Institute of Management Accountants) defines ABC as

an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs.

Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilize cost drivers to attach activity costs to outputs. ( Wikipedia )

• Sensitivity analysis is the study of how the uncertainty in the output of a mathematical model or system (numerical or otherwise) can be apportioned to different sources of uncertainty in its inputs. ( Wikipedia )

Lesson 4 Cost-volume-profit analysis

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

Lesson 5 Master budgets and operational budgets

• A budget is a quantitative expression of a plan for a defined period of time. It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. ( Wikipedia )

Lesson 7 Short term business decisions

Short term business decisions

• In finance or financial operations of borrowing and investing, what is considered

• long-term is usually above 3 years, with
• medium-term usually between 1 and 3 years and
• short-term usually under 1 year. ( Wikipedia on Term )

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Further reading

• Finance

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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 ( w:fi:Tekninen analyysi ) – 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.