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An Introduction to Financial Accounting

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An Introduction to Financial Accounting

What is financial accounting?

Here are some handy financial accounting notes.

It is not merely the legal obligation of businesses to maintain accounts but this assists them in keeping an eye at their financial standing by analyzing their income and expenses. These financial transactions and results might have to be reported to the business owners. This will also assist in the calculating of taxes ultimately.

Balance sheets, also referred to as State of Financial Position (SOFP) can be explained simply as:

AssetsLiabilities
HouseMortgage
BankLoan
CashOverdraft
ClothesElectricity Bill
TotalTotal

 

Here is the equating of accounting:

Assets = Liabilities + Capital

OR

Liabilities = Assets – Capital

Once the fiscal year draws to a close,

Total assets = Total sources of income

So,

  • A balance sheet typically portrays what is owned by a business and what is owed by it
  • It is a representation of the assets and how they are financed
  • Assets are financed by owners and long term and short term liabilities
  • Owner’s equity can be determined by the vertical format as follows:

Fixed assets

+ current assets

– Current liabilities

– non current liabilities

= net assets

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