Accounting-The-Language-of-Businesss.pdf

Accounting-The-Language-of-Business.pdf

1. Accounting: The
Language of Business
Accounting is the cornerstone of every successful business. It is used for clear,
effective communication. It provides insights into financial health and
compliance. It's important to understand accounting principles.

2. The Accounting Equation: The
Foundation
Assets =
Liabilities +
Equity
This equation is the base of
accounting. It ensures
balance in financial records.
Assets
Resources a company owns,
such as cash and equipment.
Liabilities
What a company owes to
others, like loans and
payables.
Equity
The owner's stake in the
company, including retained
earnings.

3. Financial Statements:
A Snapshot
1
Income Statement
Shows a company's financial performance over time. It calculates
profit and loss.
2
Balance Sheet
Presents a company's assets, liabilities, and equity. It provides a
snapshot at a specific point in time.
3
Statement of Cash Flows
Outlines the movement of cash both in and out of a company. It
covers operating, investing, and financing activities.

4. Income Statement
Deep Dive
Revenue Recognition
Recognize revenue when earned, not when cash is received.
Cost of Goods Sold (COGS)
Direct costs of producing goods sold by a company.
Operating Expenses
Costs incurred during the normal course of business.
Net Income
The bottom line, calculated as revenue minus all expenses.
Apple's 2023 revenue: $383.9B. Net income: $97B.

5. Balance Sheet Deep Dive
1
2
3
4
Amazon's 2023 total assets: $528.7B.
Current Assets
Assets expected to be converted to
cash within a year.
Non-Current Assets
Assets with a life of more than one year.
Current Liabilities
Obligations due within a year.
Non-Current Liabilities
Obligations due beyond one year.

6. Ratio Analysis: Interpreting the
Numbers
1
Liquidity Ratios
Measure a company's ability to meet short-term obligations.
2
Profitability Ratios
Assess a company's ability to generate profits.
3
Solvency Ratios
Evaluate a company's ability to meet its long-term debts.
Walmart's current ratio: 0.92. Debt-to-equity: 0.65.

7. Ethics in Accounting: The Cornerstone
Integrity
Uphold moral and ethical principles.
Objectivity
Be impartial and unbiased in
judgment.
Examples
Enron and WorldCom scandals
highlight risks.
Sarbanes-Oxley Act (SOX) increased regulations.

8. Accounting: A
Summary
Key Concepts Recap
Equation, statements, ratios, and ethics.
Vital for Business Success
Informed decision-making for growth.
Continuous Learning
Professional development ensures relevance.
Accounting ensures long-term financial success. Stay updated in this ever-
evolving field.