ACC - Accounting [OVERVIEW]

Accounting

Introduction

How do you know if a business is successful? Well, the proof is in the data! Business success can be determined by looking at the accounting records. These records, also called financial statements, can be analyzed and used to make informed business decisions. In order to analyze these statements, one must speak the language of business. This “language” is accounting! The accounting cycle consists of a series of steps that are repeated for each designated accounting period ending with the creation of financial statements. These statements can be compared across fiscal periods, from company to company, and across industries. The accounting information can also be used internally by owners, managers, and employees as well as externally by creditors, investors, and customers.

Knowledge Questions

In this module, we will be unraveling these knowledge-based questions:

    1. What are the financial statements of a business and how can they be used to make business decisions?

    2. What is the purpose of the steps in the accounting cycle?

    3. What are debits and credits?

    4. What are some possible sources of income for a business?

    5. How can spreadsheet software be used to create professional financial statements?

Key Terms

Accounting | the process of recording, analyzing, and interpreting financial statements.

Accounting cycle | the process businesses use to create and maintain accurate financial records and generate financial statements.

Accounting equation | the foundation for recording and analyzing financial transactions. It expresses the relationship between what is owned and what is owed by an entity.

Assets | resources that are owned by a business and have economic value.

Balance sheet | financial statement that provides a snapshot of a company’s financial performance at a specific point in time, based on the accounting equation, Assets = Liabilities + Owner’s Equity.

Cash flow statement | financial statement that provides a summary of the movement of cash in and out of a company.

Cell | in spreadsheet software, a cell is the intersection of a row and a column.

Credits | accounting entry that results in either an increase in liabilities or equity or a decrease in assets. Credits are recorded on the right side of an accounting entry.

Debits | accounting entry that results in either an increase in assets or a decrease in liabilities or equity. Debits are recorded on the left side of the accounting journal entry.

Debt capital | money a company borrows that must be repaid.

Double-entry accounting | accounting system that requires two entries, one debit and one credit.

Equity capital | capital raised by a company through selling shares of stock.

Expenses | the costs incurred by a company to operate and generate revenue.

Gains | income generated from other activities outside the company’s primary operations.

Income statement | financial statement that reports revenues, expenses, and net income over a specific period of time.

Liabilities | debts or obligations owed by a business to an external party.

Losses | expenses incurred from activities that result in a loss.

Owner’s equity | the portion of assets remaining after deducting liabilities.

Retained earnings | the amount of a company’s income left after paying all its costs.

Revenue | income generated by a company through its primary activities.

Spreadsheet software | computer program that can be used to input, store, and manipulate numerical data and text.

T-account | visual representation of a company’s accounting journal entries.

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