The summary for Accounting: Unit 1 (incomplete)
This chapter covers:
• Accounting Basics and its Statements
• Accounting Standards
• Capital & Revenue
• Control Accounts
• Depreciation
, Accounting Basics and its Statements
Accounting standards can be reduced to a few core principles. Here they are, in simple
terms and with examples:
Profit and Loss Statement (Income Statement):
The purpose of this graph is to show a company's profitability over a specified time
period (typically a quarter or year).
Assume a lemonade stand earned $1,000 by selling lemonades and spent $600 for
lemons, sugar, cups, and labor. The profit on the income statement would be $400
($1,000 minus $600).
The balance sheet:
The purpose of a balance sheet is to present a company's financial situation at a specific
point in time, including assets, liabilities, and shareholders' equity.
For example, if you have $2,000 in savings (an asset), owing $800 on a loan (a liability),
and invested $1,200 in your lemonade shop (equity), your balance sheet would show
$2,000 in assets, $800 in liabilities, and $1,200 in equity.
Statement of Cash Flows:
The purpose of this report is to track how cash flows in and out of an organization over a
certain time period.
For example, suppose your lemonade stand made $1,000 in sales, paid $600 in
expenditures, and borrowed $200 from a buddy. Your cash flow statement would show a
net cash increase of $200 ($1,000 minus $600 + $200).
, Accounting standards
can be reduced to a few core principles. Here they are, in simple terms and with
examples:
The Revenue Recognition Principle is as follows:
Rule: Revenue should be recognized when it is earned and realized, regardless of when
the cash is received.
Assume you give a service to a customer in January but don't get paid until February.
When you supplied the service in January, you should record the revenue.
The Principle of Matching:
Rule: Expenses should be matched to the revenues they help generate during the same
accounting period.
For example, if your lemonade stand spends $200 on lemons, sugar, and cups in January
to manufacture lemonades that are sold in January, you should report these expenses in
January to match them with the associated revenue.
This chapter covers:
• Accounting Basics and its Statements
• Accounting Standards
• Capital & Revenue
• Control Accounts
• Depreciation
, Accounting Basics and its Statements
Accounting standards can be reduced to a few core principles. Here they are, in simple
terms and with examples:
Profit and Loss Statement (Income Statement):
The purpose of this graph is to show a company's profitability over a specified time
period (typically a quarter or year).
Assume a lemonade stand earned $1,000 by selling lemonades and spent $600 for
lemons, sugar, cups, and labor. The profit on the income statement would be $400
($1,000 minus $600).
The balance sheet:
The purpose of a balance sheet is to present a company's financial situation at a specific
point in time, including assets, liabilities, and shareholders' equity.
For example, if you have $2,000 in savings (an asset), owing $800 on a loan (a liability),
and invested $1,200 in your lemonade shop (equity), your balance sheet would show
$2,000 in assets, $800 in liabilities, and $1,200 in equity.
Statement of Cash Flows:
The purpose of this report is to track how cash flows in and out of an organization over a
certain time period.
For example, suppose your lemonade stand made $1,000 in sales, paid $600 in
expenditures, and borrowed $200 from a buddy. Your cash flow statement would show a
net cash increase of $200 ($1,000 minus $600 + $200).
, Accounting standards
can be reduced to a few core principles. Here they are, in simple terms and with
examples:
The Revenue Recognition Principle is as follows:
Rule: Revenue should be recognized when it is earned and realized, regardless of when
the cash is received.
Assume you give a service to a customer in January but don't get paid until February.
When you supplied the service in January, you should record the revenue.
The Principle of Matching:
Rule: Expenses should be matched to the revenues they help generate during the same
accounting period.
For example, if your lemonade stand spends $200 on lemons, sugar, and cups in January
to manufacture lemonades that are sold in January, you should report these expenses in
January to match them with the associated revenue.
