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Week 2 Starting a business andintroduction to financial reportsLast week you began to explore Blackboard, met your Learning Group and began to consider the uses of accounting for different careers. This week we will encounter some common accounting terminology and look at different accounting entities.Key concepts this weekUnderstanding accounting terminologyThe main financial reportsTypes of accounting entities.Accounting terminologyAccounting uses a number of terms that you may or may not have encountered before. To learn a few of these terms, or to refresh your memory, please watch this video (Swinburne Online, 2012).Income – value flowing into the business: cash received, decreases in liabilities like bank loans.Expenses – outflow of assets or increase in liability incurred as a result of generating income: bank fees, power bills,depreciation of assetsProfit (Loss) – increase in economic benefits of the business – diff betw income and expenses.Statement of financial performance (Income Statement) – how much wealth or profit has been generated in a period.Statement of comprehensive income – similar.Statement of financial position (balance sheet) – shows assets, liabilities and equity.Assets – resource controlled by a business as a result of past events and from which future economic benefits areexpected to flow.e.g. fixed assets, motor vehicles, bank balance, money owed to business by it’s debtorsLiabilities – amounts that a business owes to other entities eg unpaid wages and taxes, bank loans, unpaid billsEquity –claim the owners of the business have over the assets of the business, assets – liabilities – retained earningsshare capital paid in, other funds introduced by ownersDepreciation – term for systematic allocation of the portion of the cost of the asset over its useful life.Straight linemethod – evenly over the useful life of the asset.Acc payable – money owed by a business to its creditors in the current financial yearAcc receivable – money owed to a business by it’s debtors in the current financial yearInventory – assets held for sale or held to be used for production of items or services for saleThe main financial reportsOver the next few weeks, you will be learning about the main financial statements used by businesses: The Statement of Financial Performance (or income statement), the Statement of Financial Position (or balance sheet) and the Statement of Cash Flows (or cash flow statement).
These statements are valuable for a range of purposes, including demonstrating the profitability, liquidy and solvency of a business.