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What do you think when you hear the term accounting? Lots of people get excited, people like us, because they appreciate the power of numbers and the discipline and rigor required to produce accounting information. And others roll their eyes and say, "I'm not ...

The most fundamental type of accounting is bookkeeping. Just the routine, systematic gathering of data, making sure that everything gets recorded. Financial accounting is the organization and summarization of these bookkeeping data into reports to be given to ...

The balance sheet is built around one of the most awesome creations of the human mind, the accounting equation. There it is.  Assets = liabilities + equity.  Now, I can tell you're underwhelmed, you were expecting a little bit more, something like Einstein's...

  1. If you buy a car and pay 10 percent of the cost in cash, and take out a loan for the remaining 90 percent, which part of the accounting equation will contain the loan? equity (n this example, the equity would be the down payment on the car, not the loan...

Let's define the items found in the financial statements. The first primary financial statement is the balance sheet. A balance sheet is a listing of a company's valuable resources, its assets. An asset is defined as a tangible thing, or an intangible right th...

A balance sheet is a listing of a company's valuable resources, its assets, paired with a list of the sources of financing to buy those assets. Those sources of financing are liabilities, borrowed money, and equity items, which represent money invested by owne...

The income statement contains two items, revenues and expenses. Revenues minus expenses equals net income. Now the income statement is constructed using a very careful sequencing of the reported revenues and expenses to highlight important profit measures.  L...

The statement of cash flows or cash flow statement is the report of the amount of cash collected and cash paid. The structure of the statement of cash flows is to separate the cash flows into three categories.  Operating activities are the things that you do ...

1. When creating a statement of cash flows, where would you put the cash used to pay employee wages? cash from financing activities cash from operating activities (Cash from operating activities includes items such as wages and utility bills.) operating a...

The financial statements are the cap stone of a careful bookkeeping process. The key to properly recording a transaction is remembering that the accounting equation, assets equal liabilities plus equity, must always be maintained. To illustrate the process o...

The debit and credit system can be summarized in two basic rules. Increases in assets are written on the left side of the page. Liabilities and equities are exactly the opposite. That's it, now let's talk about why this marvelous debit and credit system exists...

Journal entries summarize the accounts involved in a transaction, whether those accounts increased or decreased and the associated amounts. Each journal entry has its debit amounts equal to its credit amounts to ensure that the accounting equation is maintaine...

Once all journal entries are made and organized, a year-end balance for each account can be computed. This information is summarized in a trial balance, which is a listing of all the accounts and their balances. Hannah's end-of-year trial balance looks like th...

1. With debits and credits, which category will increase with a credit? expenses inventory revenues (Revenues will increase with a credit.) dividends 2. No entry can appear in both the balance sheet and the ___. statement of cash flows profit an...

Imagine a company that compensates a key employee with first, a cash salary of $80,000. Second, a new car with a value of $30,000. And third, an option to become a 5% owner of the company at the end of three years in exchange for an investment of $200,000 at t...

When does a sale get reported in the books? Let's use a real company example to illustrate the surprising complexity of this question. When Apple sells a person an iPhone, Apple is actually selling a bundle of three different things. First, there's the iPhone ...

Long-term assets such as buildings and equipment are reported in the balance sheet at their historical cost. Well, almost their historical cost. Technically, these building and equipment assets are reported at their net cost, net of depreciation. For example, ...

From 1976 through 2018, the accounting for leases was among the most deceptive accounting practices in existence. For example, in 2016 alone, these lease accounting standards allowed publicly traded companies around the world to avoid reporting three trillion ...

For large companies, the most commonly discussed net income number is earnings per share, affectionately known as EPS. Earnings mean the same thing as net income. So earnings per share is just the amount of net income divided by the number of ownership shares ...

It is often the case that one company will store its temporary excess cash by investing in the stocks and bonds of other companies. And some companies invest in the stocks and bonds of other companies as part of their business strategy, seeking to earn returns...