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Finance Information   »»  Accounting

   Accounting basically stands for the info that is used by the investors, creditors and tax authorities to make decisions regarding economic condition of the firms.Another view of ccounting is managerial accounting that is used in the firms on the internal structure basics for the information transfers regarding information needed by the internal bodies of the firm and these standards are set by the highest level of the firm as rules to follow.


    Basically it used to build different reports like:
  1. Balance sheet
  2. Income statement
  3. Statement for cash flows

Balance sheet


    It is basically a  statement of financial  position of the business  at a point of time. It is based on the following fudamental accounting  model:
             Asserts = Liability + Equity
 Asserts can classed as either current or fixed asserts.Current assets are the  asserts that can be quickly and easily onverted to cash. Current asserts  include cash, account receivable, marketable securities, notes receivable,  inventory, and prepaid assets such as prepaid insurance. Fixed assets  include land, buildings, and equipment. Such assets are recorded at  historical cost, which often is much lower than the market value.
             Liabilities represent the portion of a firm's assets that are owed to  creditors. Liabilities can be classed as short-term liabilities (current) and  long=term (non-payable) wages payable, and taxes payable. Long-term  liabilities include mortgages payable and bonds payable. The portion of a  mortgage long-term bond that is due within the next 12 months is classed  as a current liability, and usually is referred to as the current portion of long- term debt. The creditors of a business are the primary claimants, getting  paid before the owners should the business cease to exist.
             Equity is referred to as owner's equity in a sole proprietorship or a  partnership and stock holders' equity or shareholders' equity in a corporation.  The equity owners of a business are residual claimants,having a right to what  remains only after the creditors have been paid for a sole proprietor ship or a  partnership, the equity would be listed as teh owner or owners' names  followed by the word "capital".

Income statement

    The income statement presents the results of the entity's operations  during a period of time, such as one year. The simplest equation to describe  income is:
             Net Income = Revenue - Expenses
 Revenue refers to inflows from the delivery or manufacture of a product or  from the rendering of a service.Expenses are outflows incurred to produce  revenue.Income from operations can be separated from other forms of  income. In this case the income can be described by:
             Net Income = Revenue - Expenses + Gains - Losses
 where gians refer to items such as capital gains, and losses refer to capital  losses, losses from natural disasters, etc.

Statement for cash flows

   The nature of accrual accounting is such that a company may be profitable  but nonetheless experience a shortfall in cash. The ststement of cash flows  is useful in evaluating a company's ability to pay its bills. For a given period,  the cash flow statement provides the following information.
  1. Sources of cash
  2. Uses of cash
  3. Change in cash balance
   The cash flow statement represents an analysis of all of the transaction of  the business, reporting where the firm obtained its cash and what it did with  it. It breaks the sources and usses of cash in the following categories:
  1. Operating activities
  2. Investing activities
  3. Financing activities
   The information used to construct the cash flow statement comes from the  beginning and ending balance sheets for the poriod and from the statement  for the period.
   These all reports are the final product of the accountant's analysis of the  transactions of the business. It all started with a bookkeeping, which just a  first step of the accounting process. It is basically acts as a record which help  in future for other processes also.