Accounting Fundamentals
The Income Statement
Revenue
- Cogs / direct costs
= Gross Profit
- operating expenses/indirect costs
= EBITDA
- D&A
= EBIT / Operating Income / Operating Profit
- tax
- interest
= Net Income / Net Earnings / Net Profit
US Balance Sheet
from current to non-current
equity at the end
UK Balance Sheet
assets:
from non-current to current
liabilities:
from current to non-current
equity at the end
French/German Balance Sheet
from non-current to current
equity before liabilities
Current Assets
cash
short-term investments
accounts receivable
inventory
prepaid expenses
Non-Current Assets
long-term investments
PPE (property, plant & equipment)
- accumulated DEP
intangible assets
goodwill
Current Liabilities
accounts payable
deferred/unearned revenue
accrued expenses
Non-Current Liabilities
long term debt (bank loan)
Shareholder's Equity
equity capital / common shares
retained earnings
contributed surplus
accumulated other comprehensive income
noncontrolling interests
The Accounting Equation
assets = liabilities + equity
Recording transactions: increase assets
debit
Recording transactions: decrease assets
credit
Recording transactions: increase liabilities
credit
Recording transactions: decrease liabilities
debit
Recording transactions: increase shares
credit
Recording transactions: decrease shares
debit
Recording transactions: increase revenue
credit
Recording transactions: decrease revenue
debit
Recording transactions: increase expenses
debit
Recording transactions: decrease expenses
credit
The Matching Principle
The matching principle dictates that an expense should be reported in the same period as the corresponding revenue is earned. The revenues should be recorded in the period in which they are earned, regardless of when the cash is transferred.
Straight line DEP
(cost - salvage value) / lifetime
Double declining DEP
2 * opening balance / lifetime
Units of production DEP
(units produced / total units produced) * (cost - salvage value)
working capital vs cash flow
increase AR ==> -CF
increase IN ==> -CF
increase AP ==> +CF
increase UR ==> +CF
accounting number format
_(#,##0.00_);(#,##0.00);_("-"_);_(@_)
input vs formula (excel font colour)
input = blue
formula = black
What are the 3 most common DEP methods?
straight line DEP
double declining DEP
units of production DEP