| Accounting is considered to be one of those | | | | purchases of equipment. Finally, financing activities |
| complicated yet necessary chores that keep | | | | are those that affect the flow of money directly, |
| people's financial affairs relatively clean. For the | | | | such as the sale of common stock or |
| beginner who is just getting started, the process | | | | adjustments in long or short-term loans.These |
| may not be the first obstacle. Often, it is | | | | calculations are then used to find the total |
| understanding the special language used by | | | | increase (or decrease) in cash and investments. |
| accountants and those that work around them. In | | | | Fluctuations in operations, investing, or financing |
| other words, one must wade through the jargon | | | | affect cash flow. This is called the "net change" in |
| in order to understand what's going on. The first | | | | cash and marketable securities. From here, these |
| step in gaining understanding of accounting is to | | | | calculations are checked against the balance |
| break concepts down to one fundamental point: | | | | sheet.Wait, a balance sheet? Isn't that what we |
| financial statements.Corporations are extremely | | | | just did, balance?No. A balance sheet sums up a |
| fond of financial statements - after all, they are | | | | company's assets, liabilities, and value at a certain |
| required to have them. Financial statements are, in | | | | point in time. Investors look to the balance sheet |
| a broader sense, just timely statements of the | | | | to determine a company's value based on what |
| financial situation of an organization. They hold | | | | the company owns and what they owe to |
| companies accountable for how money is earned | | | | external sources. The amount of money invested |
| and spent, down to the very last detail. Financial | | | | by the shareholders affects company value in this |
| statements are often audited by external auditors | | | | way as well. The balance sheet follows a specific |
| to ensure that the company is handling records | | | | formula, where assets equal liabilities plus |
| properly. This also confirms to third parties that | | | | shareholder's equity. It is called a balance sheet |
| the company is displaying a fair and balanced view | | | | because the two sides must balance out; after all, |
| of the organization's position. These are also called | | | | a company must pay for assets by either |
| "cash flow statements". Like most financial | | | | borrowing the money directly, or through |
| concepts, financial statements can be broken | | | | shareholders. The balance sheet is clearly a great |
| down into several smaller concepts. They are: | | | | source of financial information on a company.The |
| balance sheets, cash flow statements, and profit | | | | last line of defense, the profit and loss account, |
| and loss accounts.Cash flow statements is | | | | shows the activities of a company during a period |
| another term for financial statements, but a little | | | | of time. This differs from the balance sheet in |
| more specific. This statement shows exactly | | | | that a profit and loss account serves as a log of |
| where the money goes - how it was made, | | | | a company's activities over a period of time, while |
| where it was made, and most importantly, how | | | | the balance sheet is just the financial position at a |
| was it spent. A business, after all, has many areas | | | | specific moment in time. Some value the profit |
| where money flows in and out: operating | | | | and loss account over the balance sheet, as it |
| activities, investing activities, financing activities.To | | | | marks a longer stretch of time than the balance |
| clarify, operating activities are the daily internal | | | | sheet does.Once broken down into parts, financial |
| business a company relies on to survive. This | | | | statements are not such a hard topic to handle, |
| may include, but is not limited to: collecting money | | | | even for a beginner. Financial statements expose |
| from customers, paying employees and vendors, | | | | the practices of a company - while one does not |
| interest and taxes, or even revenue from | | | | get a specific blueprint of how a company makes |
| interest payouts. Investing activities are generally | | | | or loses money, the end results are clearly |
| investments made by the company to fund | | | | displayed for people to see. |