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ACCOUNTING

It is the measurement, processing, and


communication of financial information
about economic entities such
as businesses and corporations.
An efficient and systematic accounting
system is the key to an efficient
business management.
Balance Sheet
A balance sheet is a financial statement that
summarizes a company's assets, liabilities and
shareholders' equity at a specific point in time. These
three balance sheet segments give investors an idea
as to what the company owns and owes, as well as
the amount invested by shareholders.

The balance sheet adheres to the following formula:


Assets Liabilities = Share holders equity
Assets, Liabilities and Equity
Assets Liabilities Equity

Debt that can be Assets Liabilities


Valuable and discharged by liquidating
marketable items owned equal valued assets. Net worth/ Book Value
by the company.
It include loans, It is also a liability
Cash, receivables, accounts payable, owned by the company
financial investments, mortgages, deferred to its shareholders
tangible assets revenues and accrued
expenses.
Income Statement
An income statement is a financial statement that reports a
company's financial performance over a specific accounting
period.

Financial performance is assessed by giving a summary of


how the business incurs its revenues and expenses through
both operating and non-operating activities. It also shows the
net profit or loss incurred over a specific accounting period.

Post facto statement: It records what has already happened


but not what is expected to happen in future.
Financial Ratios
A financial ratio or accounting ratio is a relative
magnitude of two selected numerical values taken
from an enterprise's financial statements.

It can be derived from a balance sheet or income


statement
Types of ratios
Current Ratio =
Current assets/ Current Liabilities
Quick Ratio (short term solvency in a
business)
(Cash + Accounts Receivable + Short-term
Investments) / Current Liabilities.
[ Inventory, supplies and prepaid expenses are
excluded from it]
Lets assume Caroles Clothing Store is applying for a
loan to remodel the storefront. The bank asks Carole
for a detailed balance sheet, so it can compute the
quick ratio. Caroles balance sheet included the
following accounts:
Cash: $10,000
Accounts Receivable: $5,000
Inventory: $5,000
Stock Investments: $1,000
Prepaid taxes: $500
Current Liabilities: $15,000
The bank can compute Caroles quick ratio like this.
(10000 + 5000+ 1000)/15000
Working Capital = Current assets current liabilities
Lets look at Paulas Retail store as an example. Paula
owns and operates a womens clothing and apparel store
that has the following current assets and liabilities:
Cash: $10,000
Accounts Receivable: $5,000
Inventory: $15,000
Accounts Payable: $7,500
Accrued Expenses: $2,500
Other Trade Debt: $5,000
Paula would can use a net working capital calculator to
compute the measurement like this:
(10000 + 5000 + 15000) (7500 + 2500 + 5000) =
15000
Debt to Equity: The debt to equity ratio shows the
percentage of company financing that comes from
creditors and investors. A higher debt to equity ratio
indicates that more creditor financing (bank loans) is
used than investor financing (shareholders).

Total Liabilities/ Total equity


Gross Margin = (Gross Profit / Net sales)* 100

Profit Margin = (Net income after tax / Net


sales)* 100

Earning Per share = Net income after tax /


weighted average no of common shares
outstanding
INCOME STATEMENT
The income statement is the small business
owners profit and loss statement for the
business firm.

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