## Chapter 1 Accounting as a Tool of Business ### The Three Parts of Business Activity 1. Financing 2. Investing 3. Operating ### 5 Main Account Types 1. Asset - Cash - Accounts Receivable - Land - Property - Equipment - Inventory - Copyrights - Patents - Other Asset Accounts 2. Liability - Loans Payable - Accounts Payable - Salaries & Wages Payable - Bonds Payable - Other Liabilities 3. Revenue - Sales Revenue - Service Revenue - Interest Revenue - Licensing Revenue - Other Revenue 4. Equity - Common Stock - Owner's Capital - Contributions - Dividends - Retained Earnings - Other Equity Accounts 5. Expense - Rent Expense - Supplies (Short Term) - Cost of Goods Sold (COGS) - Licensing Expense - Utility Expense - Insurance Expense - Other Expenses Example: "Purchase some repair equipment for $5,000 with cash, asset for repair equipment increases by 5k, cash decreases by 5k, net asset values stays the same. Purchase equipment with loan then asset increases 5k and accounts payable liability increases 5k because now that money is owed." ### Four Main Branches of Accounting 1. Bookkeeping 2. Financial Accounting 3. Managerial Accounting 4. Income Tax Accounting ## Chapter 2 Introduction to Financial Statements ### The Four Most Basic and Widely Used Financial Statements 1. Income Statement / Profit & Loss Statement (P & L) - Lists revenues and expenses over a given time period - main output of the statement is the net-income 2. Statement of Owner's Equity - If net-income is $2,380 and the owner takes a $2,000 withdrawal for salary as an owners withdrawal, then the equity in the business increases by $380. - Technically the Equity starting at $19,000 + $2,380 - $2,000 - $19,380 Revenues increase the equity but the withdrawal removes some so if the net-income is still positive then the equity increases 3. Balance Sheet - assets = Liabilities + equity - Snapshots in time rather than a period of time report 4. Statement of Cash Flows - Shows Cashflows from [[#the-three-parts-of-business-activity]] - Cash flows from Operating Activities like (Cash from sales + outgoing cash from operating activities) - Cash flows from Investing Activities like (equipment purchase) - Cash flows from Financing Activities like (Owners withdrawal, or owners contribution) - gives net cash flow - shows cash position at beginning of period then current cash position which is (prior - net current cashflow) ## Chapter 3 Financial Statement Analysis - Asset Depreciation makes it so the asset can be written off over time and gradually even across balance statement periods - [x] IRS guidelines on Depreciation in Publication 946 ## Chapter 4 Assets = Liability + Equity - Liabilities: - Accounts Payable: Money you owe someone for something - Notes Payable: Money owed to a bank or other lender (both short or long term debts) - un-earned revenue: Money that has exchanged hands that has not been "earned yet" such as being paid in advance for a guest appearance but the appearance has yet to take place but you are now holding the cash. - Equity: - Owners Equity - Owners Contributions - Owners withdrawals (Similar to dividend payments) - Revenues (Shows potentially as Cash increase on assets) - Expenses (Expenses decrease the Owners Capital Balance) - Explained simply with revised accounting formula: - `Assets = Liabilities + (Owners Contributions - Owners Withdrawals + Revenue - Expenses)` ## Chapter 5 Recording Business Transactions - Source Documents: Primary records to verify a change to an account (bill, invoice, receipt, etc) - Journals where granular Transactions are recorded ## Chapter 6 Managerial Accounting How to Put Accounting Fundamentals to Work on Behalf of Your Business ## Chapter 7 Using Financial Accounting to Select and Monitor Stocks and Other Investments ## Chapter 8 Income Tax Accounting or Keeping Your Business Out of IRS Crosshairs ## Chapter 9 Detecting and Preventing Fraud ## Chapter 10 Sizing Up the Software for Accounting and Bookkeeping