Financial Accounting Notes
An asset is anything that will give me some value in the future - So Cash and Accounts Receivables are assets, and so are machines, buildings, etc.
FINANCIAL STATEMENTS
The income statement reflects conditions over a period of time (say Q1 2013), while the Balance sheet reflects the state of the business at a specific point in time (say, at end of Q1 2013)
Equity is what the owners/stakeholders of the company really have, of value. Equity = Assets - Liabilities
Asset: Anything that will give me value in the future
Liability: Anything that I have to give value to
Equity at point 2 - Equity at point 1 = Net income in period 1-2
Assets = Liabilities + Stockholders' Equity
where, Stockholders' Equity = Contributed Capital + Retained Earnings
where, Contributed Capital = Common Stock + Additional Paid-in Capital
Common Stock = No. of common shares * issue amount per share. The total common stock amount is also known as par value. The Contributed Capital value exceeding Par Value is called the Additional Paid-in Capital. (Additional Paid-in Capital is usually assumed to be 0.)
Retained earnings are affected by revenues, expenses and dividends. Dividends are effectively accounts payable, and hence liabilities.
Revenues - Expenses = Net Income
Net Income - Dividends = Retained Earnings
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To be recorded as an asset, an economic resource must meet four requirements:
* Acquired at measurable cost * Obtained or controlled by the entity * Expected to produce future economic benefits * Arises from a past transaction or event
Assets like computers and buildings having physical substance are tangible assets. Other assets, like licenses and prepaid expenses that lack physical substance, are intangible assets.
On the balance sheet, assets are organized into two categories: current and non-current. Current assets include cash and those assets that are expected to be converted into cash
FINANCIAL STATEMENTS
The income statement reflects conditions over a period of time (say Q1 2013), while the Balance sheet reflects the state of the business at a specific point in time (say, at end of Q1 2013)
Equity is what the owners/stakeholders of the company really have, of value. Equity = Assets - Liabilities
Asset: Anything that will give me value in the future
Liability: Anything that I have to give value to
Equity at point 2 - Equity at point 1 = Net income in period 1-2
Assets = Liabilities + Stockholders' Equity
where, Stockholders' Equity = Contributed Capital + Retained Earnings
where, Contributed Capital = Common Stock + Additional Paid-in Capital
Common Stock = No. of common shares * issue amount per share. The total common stock amount is also known as par value. The Contributed Capital value exceeding Par Value is called the Additional Paid-in Capital. (Additional Paid-in Capital is usually assumed to be 0.)
Retained earnings are affected by revenues, expenses and dividends. Dividends are effectively accounts payable, and hence liabilities.
Revenues - Expenses = Net Income
Net Income - Dividends = Retained Earnings
-----------------------------------------
To be recorded as an asset, an economic resource must meet four requirements:
* Acquired at measurable cost * Obtained or controlled by the entity * Expected to produce future economic benefits * Arises from a past transaction or event
Assets like computers and buildings having physical substance are tangible assets. Other assets, like licenses and prepaid expenses that lack physical substance, are intangible assets.
On the balance sheet, assets are organized into two categories: current and non-current. Current assets include cash and those assets that are expected to be converted into cash