Accounting Lecutre

accounting

A comprehensive system for collecting, analyzing, and communicating financial information to firm's internal & external stakeholders

maagerial accounting

internal info not available publicly

financial accounting

public company must release publicly and and required to be audited

asset

a present right of the entity to an economic benefit

libaility

a present obligation of an entity to transfer an economic benefit

equity

residual interest in the assets of an entity that remains after deducting it liabilites

accounting formula

Assets = Liabilities + Equity

balance sheet

snapshot of organization's financial condition at a specific point in time

income statement

summary of company's revenue, expenses, profit, or losses over a specific period of time

statement of cash flow

detailed breakdown of company's inflow and outflow over a specific period of time

statement of cash flow highlights

company's ability to generate cash from operations, manage its investing and financing activities, and maintain liquidity

statement of comprehensive income

extended version of an income statement that includes both net income and the comprehensive income

statement of shareholder's equity

shows change in equity portion of a company's balance sheet over a specific period of time

profitability ratios

measures of how efficiently a company is generating profit

gross profit margin

measures the percentage of revenue that exceeds the cost of goods sold

gross profit margin =

Gross profit / revenue x 100

net profit margin

indicates the percentage of revenue remaining after all expenses, taxes, and interest have been deducted from total revenue

net profit margin =

net income/revenue x 100

return on assets (ROA)

measures how effectively a company uses its assets to generate profit

return on assets (ROA) =

net income/average total assets x 100

liquidity and solvency ratio

help us to assess a company's to meet its debts

current ratio

indicates a company's ability to cover its short-term liabilities with its short-term assets

- higher ratio is better --> around 1.0

current ratio =

current assets/current liabilities

debt to equity ratio

compares a company's total liabilites to its shareholders' equity, reflecting the degree to which debt is used to finance the company

debt to equity ratio =

total liabilities/shareholders' equity

efficiency ratios

measure how well a company is managing its assets

inventory turnover

measures how efficiently a company manages its inventory by comparing the costs of goods sold with average inventory

- high turnover can mean sales are strong

inventory turnover =

costs of good sold/average inventory

accounts receivable turnover

indicates how efficiently a company collects its receivable by comparing net credit sales with average account receivable

- high number is quickly turning the customer sale into actual cash

accounts receivable turnover =

net credit sales/average accounts recievable