BASIC FINANCE

• Accounting process

  Identifying accountable events from non-accountable ones because only accountable events are recorded
• Accounting process


  At the end of the accounting period, information processed is summarized to produce reports, the most common form of which is financial statements
• Accounting


  A service activity that is an information system measuring, processing, and communicating financial information about an economic entity
• Finance is a term related to financial affairs. When it comes to financing, making a budget is important
• Journalizing

  Only accountable events are recorded, then effects of journal entries are classified and summarized per account, known as Posting
• Accounting


  Referred to as the language of business
• Forms of Business Organization

  • Service business
  • Merchandising (trading) business
  • Manufacturing business
• Accounting


  The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information
• Accounting Equation: Assets = Liabilities + Equity
• The Income Statement or Profit and Loss Statement presents the results of the firm's profit-oriented activities for a certain period, showing revenues, expenses, profit, and loss
• Statement of Changes in Owners Equity or Statement of Retained Earnings provides information about cash receipts and payments, as well as the cash effects of operations, investing transactions, and financing transactions
• The Balance Sheet or Statement of Financial Position presents the financial status of the firm at a particular point in time, showing assets, liabilities, and owner's equity
• Cash Flow Statement contains information about expenditures and cash inflows made by a business entity during a certain period, including operational activities, investing activities, and financing activities
• Asset


  A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit
• Equity


  Amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was paid off
• Liabilities can be contrasted with

  Assets
• Liability


  Something a person or company owes, usually a sum of money, settled over time through the transfer of economic benefits including money, goods, or services
• Accounting Equation

  Assets = Liabilities + Equity
• Types of liabilities

  • Loans
  • Accounts payable
  • Mortgages
  • Deferred revenues
  • Bonds
  • Warranties
  • Accrued expenses
• Types of revenue

  • Earnings or gains arising out of the business activities conducted by the firm
• Types of assets

  • Current
  • Fixed
  • Financial
  • Intangible
• Types of expenses

  • Used-up assets necessary for producing the revenues of the firm
• Account classifications

  • Assets
  • Liabilities
  • Owner's Equity or Capital
  • Revenue
  • Expenditure
  • Valuation or contra-account
• Revenue and expenditure accounts are classified as temporary or nominal accounts and are closed at the end of the accounting period. Assets, liabilities, capital, and valuation accounts are real accounts and remain open permanently
• Balance Sheet - Financial statement that shows assets, liabilities, and equity at a specific point in time.
• Accounting Information System (AIS) - A set of procedures used to collect, process, summarize, analyze, report, interpret, and communicate accounting data.
• The Accounting Cycle

  1. Analyze Transactions
• The Accounting Cycle

  1. Analyze Transactions
  2. Prepare Journal Entries
  3. Post Journal Entries
  4. Prepare Unadjusted Trial Balance
  5. Make Adjusting Journal Entries
  6. Prepare Adjusted Trial Balance
  7. Prepare Financial Statements
  8. Prepare Closing Entries
  9. Prepare Post-closing Trial Balance
  10. Create and post reversing entries
• Service Business


  offers services as its main product rather than physical goods or items. This type of business may offer professional skills, expertise, advice, lending services, and similar services.
• Merchandising (trading) business


  buys and sells goods without changing their physical form. This type of business includes general merchandise sellers such as grocery stores, pharmacies and the like. Distributors and dealers such as rice wholesalers also fall under this category.
• Manufacturing business


  buys raw materials and processes them into final products. This type of business changes the physical form of goods it has purchased in its production process. Car manufacturers, food processing companies and factories among others fall under this type of business.