Trigger seven

Importance of accounting in business

 Learning objectives

 How to understand terms of financial statements?
Difference between income statement and balance sheet.
How to interpret the figures in a financial statement?

Keywords

Profit awareness
Financial statement
Accounting
Business sustainability
Breakevenpoint
 
How to understand terms of financial statements?

"Balance sheet
This is your company's financial history. If you want to get a really good idea of how well your company is doing

Income statement
1.Measure your company´s financial performance over a pecified accounting perdiod
2.Summarize results from revenue, expences, gain and loss transactions 
Revenues are any type of cash inflow that can include sales, fees, interest, dividends and rent.
Expenses are an outflow of cash and can include cost of goods sold, depreciation, interest, rent, salaries and wages, and taxes.
Gains are increases in equity.
Losses are decreases in equity (sale of investments or plant assets, settlement of liabilities, write-offs of assets due to impairments or casualty).
Cash flow statement
This statement simply shows the amount of cash generated and used for a specified period."

  http://blog.ignitespot.com/basic-accounting-terms-financial-statements-and-reports


Difference between income statement and balance sheet



"Income statement
Covers a range or time (year or a quarter depending on how often looked into)
Provides an overview of revenues, expenses, net income and earnings per share. It usually provides two to three years of data for comparison.
https://www.investopedia.com/terms/f/financial-statements.asp

Begins with sales and ends with net income.
It also provides analysts with gross profit, operating profit and net profit. Each of these is divided by sales to determine gross profit margin, operating profit margin and net profit margin.

https://www.investopedia.com/terms/f/financial-statement-analysis.asp
 
Balance sheet
Provides an overview of assets, liabilities and stockholders' equity as a snapshot in time.
The date at the top of the balance sheet tells you when the snapshot was taken, which is generally the end of the fiscal year.
The balance sheet equation is assets equals liabilities plus stockholders' equity, because assets are paid for with either liabilities, such as debt, or stockholders' equity, such as retained earnings and additional paid-in capital.
Assets are listed on the balance sheet in order of liquidity.
Liabilities are listed in the order in which they will be paid."
 
To analyze trends in assets and debts.  
 

How to interpret the figures in a financial statement?

Usually include
-income statements
-balance sheet
-statements of retained earnings
-cash flows

 "Financial analysts rely on data to analyze the performance of, and make predictions about, the future direction of a company's stock price. One of the most important resources of reliable and audited financial data is the annual report, which contains the firm's financial statements. The three main financial statements are the income statement, balance sheet and cash flow statement."
 
 

Sources:
 
http://blog.ignitespot.com/basic-accounting-terms-financial-statements-and-reports 

https://www.investopedia.com/terms/f/financial-statements.asp

https://www.investopedia.com/terms/f/financial-statement-analysis.asp 

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