Accounting

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“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


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 )

Accounting for a New Business 2

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

Topics covered:

Accounting 2 class week 14

Topics: Financial flows

in managerial economics, is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions. ( Wikipedia )
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 15

Accounting 2 class week 16

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

  • 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 )

Accounting 2 class week 18

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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