| A company’s financial position indicates the | | | | increase and decrease in a stock are known as |
| amount of resources that they have, and also the | | | | revenues and expenses respectively and these |
| claims against those precious resources at any | | | | come from operating a business whether online or |
| time. Claims can also be referred as equities. So, a | | | | offline. If you’re online than an operating |
| company can be known as a combination of | | | | expense that you will have if you have your own |
| economic resources and equities. Economic | | | | website is your domain name and hosting service. |
| Resource=Equities. No mater what type of | | | | Another example is if a customer agrees to pay |
| business your in, every type of company has two | | | | you in the near future for a service that the |
| different types of equities. They are | | | | company will perform. |
| creditor’s equity and owner’s equity. In | | | | The money is recorded in the accounts receivable |
| another way Economic Resources= Creditors | | | | (asset account) which increase the asset value |
| Equities +Owners Equity. When using accounting | | | | but decrease the stock holder’s equity |
| language, the economic resources a company has | | | | amount which is an example of revenue. |
| at a particular time is called their assets? On the | | | | However, if a company promises to provide a |
| other hand the amount of creditor’s equity a | | | | service in the future than this is known as an |
| company has is known as their liabilities. | | | | expense. When this happens the assets decrease |
| So here is the standard equation of accounting or | | | | (accounts receivable) and the liabilities (accounts |
| better known as the accounting equation: | | | | payable) is increased, which makes pretty good |
| Assets=Liabilities + Owner’s Equity. Similar to | | | | sense right? When the revenues exceed the |
| an algebraic equation, both sides of the equation | | | | expenses this is known as the net income which |
| has to be equal. This equation comes in handy | | | | is good, and on the other hand when expenses |
| when analyzing the financial effects of your | | | | are greater than revenues than this is known as |
| everyday business activities. Let’s talk about | | | | net loss which means that you’re losing |
| a very important concept of any business. Assets | | | | business or your business costs more to operate |
| are known as the economic resources that a | | | | than what you make. Dividends are the |
| business has that are expected to generate | | | | distribution of assets to stockholders which refer |
| money for them in the future. Some examples | | | | to the past earnings. |
| are real estate and any other property that a | | | | Do not confuse expenses with dividends, because |
| business own so that they can rent out to people. | | | | they both are reducing the retained earnings |
| If a business is owed money than it goes into | | | | amount. Retained earnings are the collected net |
| what is known as accounts receivable which are | | | | income or revenues minus expenses. The financial |
| monetary items. However, there are some | | | | statements are the main way for communicating |
| assets that are not physical. Some examples are | | | | information about a business to those who have |
| copyrights, trademarks, and patents, but they are | | | | some type of interest in it. What helps me is to |
| still extremely valuable to a business. | | | | think of these statements as a type of model for |
| Next, liabilities are the obligations that a business | | | | business because they show how a business is |
| has such as paying cash, provide future services | | | | doing in financial terms. However, like a variety of |
| to individuals, or transferring assets to another | | | | methods and models, financial statements are not |
| entity. These are known as the debt of a | | | | perfect and have their flaws. There are four main |
| business or the money that they have to owe in | | | | financial statements, and they are income |
| the near future. All of these are recorded in the | | | | statement, the statement of retained earnings, |
| accounts payable. As I’m sure you know, | | | | the balance sheet, and the statement of cash |
| having a lot of debt is not fun and liabilities/debt | | | | flows. What the income statement does is |
| are claims that are seen by the law. The law | | | | summarize the revenues earned or the money |
| gives creditor (People that money is owed to) the | | | | made, and the expenses or the money that is |
| right to push the sale of a company’s assets | | | | deducted from a business. Many accountants |
| if they don’t pay their debt on time. Creditors | | | | consider it the most important financial report |
| have a ton of rights over owners and they have | | | | because it makes it clear whether a business has |
| to be paid in full even before the owners receive | | | | met its profitability goal. |
| anything. It is very possible for a debt to | | | | The next one is the statement of retained |
| consume up all a company’s resources. Next, | | | | earnings, and it displays the retained earnings over |
| owner’s equity refers to the claim that | | | | a period of time. The time that the retained |
| owners of a business make in regards to the | | | | earnings will be zero is when a company first |
| assets they have. It is the residual interest or the | | | | started out in their accounting period. A lot of |
| remaining assets of a company after deducting | | | | companies use the statement of stockholder |
| the amount of entity liabilities. | | | | equity as a substitute of retained earnings. This is |
| Here is the equation for owner’s equity. | | | | a more detailed statement because it displays not |
| Owner equity=Assets-Liabilities. The owner’s | | | | only the aspects of retained earnings but it also |
| equity within a particular corporation is referred as | | | | shows the changes in the stockholders equity |
| stockholders equity, so the equation then looks | | | | accounts. Next, the financial situation of a business |
| like this. Assets=Liabilities +Stockholder’s | | | | on a particular date, usually on the end of the |
| Equity. The stockholders equity has two distinct | | | | month or the year is the balance sheet. The |
| parts which are the contributed capital and | | | | balance sheet displays the value of a business |
| retained earnings. Stockholder’s | | | | according to their assets and the claims against |
| Equity=Contributed Capital + Retained Earnings. | | | | those assets which are the liabilities and the |
| The amount than an individual stockholder puts | | | | stockholders equity. |
| into a business is known as the contributed capital. | | | | Last, the statement of cash flows is geared |
| Contributed capital is usually divided into two | | | | towards a company’s liquidity measures. |
| separate parts known as par value and “par | | | | They are basically the flow and outflow of cash in |
| value” and “additional paid in capital.” | | | | a company. The net cash flow is the subtraction |
| The retained earnings are the amount of equity | | | | between the inflow and outflow of money. The |
| that is earned by stockholders from the income | | | | statement of cash flows also display the money |
| generating activities of a business that are kept | | | | generated by simply operating a business, and it |
| for future uses by a business. Retained earnings | | | | also displays the investing and financing |
| are affected by three types of transactions | | | | transactions that occurs during a particular |
| which are revenues, expenses, and dividends. The | | | | accounting period. |