Accounting and basic financial statements
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accounting and accounting process. i explain basic financial statements.and i describe ratio analysis for measuring the current position of the business.and which steps are business have to taken for achieve maximum profit
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Accounting and basic financial statements
- 4. BUSINESS ACTIVITIES INVOLVING ACCOUNTING activities provide necessary funds to start a business and expand it after it begins operating. activities provide valuable assets required to run a business. :-activities focus on selling goods and services, but they also consider expenses as important elements of sound financial management.
- 5. Set of activities involved in converting information about transactions into financial statements
- 6. FINANCIAL STATEMENTS o o o o Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows
- 7. financial statements answer basic questions including: What is the company’s current financial status? What was the company’s operating results for the period? How did the company obtain and use cash during the period?
- 8. o What are the resources of the company? o What are the company’s existing obligations? o What are the company’s net assets?
- 9. THE BALANCE SHEET Summary of the financial position of a company at a particular date cash, accounts receivable, inventory, land, buildings, equipment and intangible items accounts payable, notes payable and mortgages payable net assets after all obligations have been satisfied
- 10. relationship that states that assets equal liabilities plus owners’ equity. process by which accounting transactions are entered; each individual transaction always has an offsetting transaction.
- 11. Inventories cash Current Assets Account Receivables Checks and money deposits Credit cards & receipt Short term investment prepaid insurance prepaid rent and supplies prepaid interest and property taxes
- 12. Land & Building Are not moveable Fixed Asset Finature Fixture Fixed assets Property Plant Equipment Natural resources
- 15. Long Term liabilities Long Bond & term note liabilities payable Bank loan Account payable
- 16. Equity contributed (or paid in) capital stock Owners’ claims on the company assets accumulated profits/losses
- 17. Liabilities Cash $ 40 Accounts receivable 100 Land 200 Total assets $340 Accounts payable Notes payable $ 50 150 Owners’ Equity Capital stock Retained earnings Total liabilities and owners’ equity $200 $100 40 $140 $340
- 18. INCOME STATEMENT o financial record of a company’s revenues and expenses, and profits over a period of time. o Firm’s financial performance in terms of revenues, expenses, and profits over a given time period. o Reports profit or loss. o Focus on revenues and costs associated with revenues.
- 19. Assets (cash or AR) created through business operations Assets (cash or AP) consumed through business operations Revenues - Expenses
- 20. INCOME STATEMENT
- 21. o Shows the results of a company’s operations over a period of time. o What goods were sold or services performed that provided revenue for the company? o What costs were incurred in normal operations to generate these revenues? o What are the earnings or company profit?
- 22. EPS AND DIVIDENDS PER SHARE = net income = dividends number of shares number of shares
- 23. STATEMENT OF RETAINED EARNINGS Beginning retained earnings +Net income –Dividends paid =Ending retained earnings
- 24. RETAINED EARNINGS o Increase in net assets o Increase in retained earnings o Increase in owners’ equity o Decrease in net assets o Decrease in retained earnings o Decrease in owners’ equity
- 25. RATIOS o Tool for measuring a firm’s liquidity, profitability, and reliance on debt financing, as well as the effectiveness of management’s resource utilization o Measure of leverage
- 26. compares current assets to current liabilities. measures the ability of a firm to meet its debt payments on short notice. current assets current liabilities current assets – inventory current liabilities
- 27. Cost of good sold inventory indicates the number of times merchandise moves through a business Sales Total Assets indicates how much in sales each dollar invested in assets generates
- 28. o Current ratio o Acid Test OR Quick ratio o Inventory turnover ratio o Total asset turnover ratio o Gross profit margin o Operating profit margin o Net profit margin o Debt to equity ratio o Debt to long term capital o Interest Coverage o Fixed Financial Ratio o Cash Flow Inters coverage o Return on Equity
- 29. Leverage ratios measure the extent to which a firm relies on debt financing. Total liabilities Total Asset Long Term Debt Owners Equity
- 30. Gross Profit Sales EBIT Net sale Net Profit Sales × 100 × 100 × 100
- 31. EBIT interest expense EBIT + ELIE gross interest expense + ELIE cash flow + interest expense + ELIE interest expense + ELIE ELIE = Estimated Lease Interest Expense
- 32. net sales avg. total net assets net sales avg. net fixed assets net sales avg. equity