Accounting:
the process of collecting, analyzing, and reporting financial information
Financial accounting
provides information for people outside an organization through the generation of standardized financial statements
Managerial accounting
provides information for managers within an organization, Used to make decisions about a company’s financing, investing, marketing, and operating activities
Flexibility exists to provide reports about the revenue and costs associated with particular products, stores, or departments
Who uses managerial accounting information?
Operations managers, marketing managers, financial managers, company executives
Who uses financial accounting information
Lenders such as banks, investors, business customers, tax and regulatory agencies
Owners’ equity
Portion of company assets that belongs to the owners after all debts are paid
Assets − Liabilities = Owners’ Equity
Liquidity:
the ease at which an asset can be converted to cash
Structure of the statement of financial position
Asset categories are listed in order from most liquid to least liquid
Assets and liabilities are divided between current and long-term
Assets minus liabilities always equals owners’ equity
what do cash flows do?
Categorizes cash from operating, investing, and financing activities
Financial ratio
: a number that shows the relationship between two elements of a company’s financial statements
Allow for a fair and accurate comparison between current financial results and results from previous periods or industry competitors
Calculating requires formulas and knowledge of location to find the numbers that fit those formulas
what re three types of financial ratios?
- Profitability
- Liquidity
- Leverage
what do PROFITABILITY RATIOS do?
Show how effectively the company uses resources to generate profits
Return on sales:
measures profitability by dividing net income by revenue, also called profit margin
what do LIQUIDITY RATIOS do?
Show the company’s ability to convert assets to cash and pay its short-term debts
Current ratio
measures liquidity by dividing current assets by current liabilities
what do LEVERAGE ratios do?
Show the level of debt compared to assets or equity
Debt-to-equity ratio
measures leverage by dividing total liabilities by owners’ equity
