Financial Accounting For Dummies

how a company brings in cash and for what costs the cash goes back out the door.

Assets: Resources owned by a company, such as cash, equipment, and buildings.
• Liabilities: Debt the business incurs for operating and expansion purposes.
• Equity: The amount of ownership left in the business after deducting total liabilities from total assets.

Finally, you find out about the two different methods of accounting, cash and accrual — though I concentrate on accrual because this is the method financial accountants use.

The three sections of the balance sheet are assets, liabilities, and equity, and together they show the financial position of a company. Assets are resources a company owns, liabilities show claims payable by the company or debts against those assets, and equity is the difference between assets and liabilities, which equals the total of each owner’s investment in the business.

The income statement shows a company’s revenue and expenses, the ultimate disposition of which shows whether a company made or lost money during the accounting period.

The statement of cash flows shows the cash received by a company and the cash paid by a company during the accounting period. It tells users of the financial statements how well the company is managing its sources and uses of cash.