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Accounting is the language of business. Thus, every Accounting principals, executive, manager or student needs to understand at least the basic accounting principles.
A good example for learning purposes are the financial statements of Hugo Accounting principals or Facebook. Let me walk you through the three financial statements. Income Sales; you sold different types of products and services to B2C and B2B customers and can expect them to pay a known price Tax income; your business was not running very well and your earnings before taxes is negative.
The tax authority will give you a type of tax income so you pay less income tax in future years see tax loss carry forward. This will help you get familiar with the different types of income and expenses that are part of the basic accounting.
A common categorization of assets is as follows: Fixed assets; this is the net value remaining for goods that are used over multiple periods Trade receivables; this is the amount your customers owe you and includes the value added tax VAT asset; this is the value added tax that was part of the goods and services you purchased, the tax authority owes you this money Inventory; this is the net remaining value of raw materials, work in progress, finished products and trading goods Cash; this is how much cash you have in the bank and on hand The liabilities can be classified in the following way: Trade payables; this is the gross amount outstanding that you owe your suppliers Provisions; this is the amount you owe suppliers from which you did not receive invoices yet.
Provisions are uncertain in timing and amount. VAT liability; this amount is associated with the sales you generated. You owe this amount to the tax authorities.
Debt; you owe this amount to your banks as they provided you with debt Equity; this amount is owed to your equity investors and basically consists of capital and retained earnings Generally speaking, the income from the income statement increases the associated asset.
Similarly the expenses from the income statement increase the liabilities. This means that expenses will increase the amount you owe to others. This we will discuss in the next step — the cash flow statement.
Cash flow statement The cash flow statement explains the change in cash from one period to the next period. The cash flow statement consists of the following parts: There are two ways to calculate the operating cash flow: Indirect method; The indirect method starts with the net income and adds the non-cash charges from the income statement.
Then you will add the change in each balance sheet account from last period until this month except for the balance sheet items cash, fixed assets, debt and equity. At last you add net income, income statement adjustments and balance sheet adjustments. Direct method; The direct method categorizes all cash payments related to the assets and liabilities on the balance sheet into cash received from customers, cash paid to suppliers, cash paid to employees, and cash paid to tax authorities.
You get the capital expenditures short: The sum of all three cashflows is the change in cash from last period until today. Please study the following example for further understaning the cash flow statement, so become better at understanding the basic accounting principles.
First, you sell your product or service to a customer. In addition you give him an invoice with the amount to be paid and the due date of payment. This will trigger an income e. Then, your customer owes you the money and you show that on the balance sheet as a trade receivable. Furthermore, you will decrease your inventory in the amount of cost of goods sold.
Lastly, your customer pays which means your trade receivable asset will be non existent, because you received cash from the customer cash flow statement. First, you buy a product or service in a specific month which is then expensed in this month income statement.Cons.
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Browse today! What are 'Generally Accepted Accounting Principles - GAAP' Generally accepted accounting principles (GAAP) refer to a common set of accepted accounting principles, standards, and procedures that.
27 draw up the individual financial statements for the year ended December 31, according to international accounting standards. The main accounting standards applied are described below.
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Definition and introduction. The worldview of accounting and accountants may certainly involve some unhelpful characters poring over formidable figures stacked up in indecipherable columns.