Key Terms
Covers
A PERIOD of time Purpose: shows cash INFLOWS and OUTFLOWS; fills the gap left by accrual accounting
Loss) Full formula
(Revenue + Gains) - (Expenses + Losses) = Net Income (Loss)
Revenue
Value of goods/services provided through primary business operations. Increases business value.
Expenses
Costs of providing those goods/services. Decrease business value.
Gains
Increase in value from INCIDENTAL or PERIPHERAL activities (not the main business). Example: selling land your business
Losses
Decrease in value from incidental or peripheral activities. Similar to expenses but infrequent.
Net Income
Revenues + gains exceed expenses + losses. Net Loss: expenses + losses exceed revenues + gains.
Formula
Current Assets / Current Liabilities Result is a RATIO (not dollars). Above 1.0 = current assets exceed current liabilit
Increases equity
Revenues, gains, investments by owners Decreases equity: expenses, losses, distributions to owners
Investments by owners
Owner contributes cash or other assets in exchange for ownership interest.
Distributions to owners
Periodic rewards paid out to owners.
Formula (accounting equation)
Assets = Liabilities + Owner's Equity
Assets
Resources owned or controlled by the business. Liabilities: amounts owed to others (creditors).
Sources of cash
Where cash came from (sales, loans, etc.) Uses of cash: what cash was spent on (interest, equipment, etc.)
Current asset
Converted to cash or used within one year Current liability: due within one year Current ratio: current assets / current