Accounting_FInancial_Statement_Interrelated

Accounting_FInancial_Statement_Interrelated - Accounting is...

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Accounting is called “language of business”. The basic purpose of accounting is to record transactions of the individual, business or non-profit organization in scientific way and then provide information needed for taking sound financial decisions. The information provided by Accounting is used by internal users (employees, management) as well as external users (creditors, shareholders). Managerial Accounting provide information for internal users while Financial Accounting provides information about financial health and company’s performance to external parties. A financial report is the principal source of information for external parties (creditors, investors, analysts and regulatory bodies). The financial statements are the primary source of information about the financial performance of a company. In order to provide financial information to external parties, companies prepare 4 basic financial statements: (1) Balance Sheet, (2) Income Statement, (3) Statement of stockholder’s equity and (4) Statement of Cash flows. Balance Sheet: A balance sheet provides a snapshot of company’s financial position on a particular date. It includes all assets and liabilities of a company including shareholder’s equity. The relationship among Assets, Liabilities and Shareholder’s equity is: Total Assets = Total Liabilities + Shareholder’s Equity This equation is called Accounting Equation which is base of accounting. Based on balance sheet, working capital is calculated using following formula: Working Capital = Current Asset – Current Liability
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Income Statement: Income Statement is prepared for a period and it contains all income earned and expenses incurred. Profit is calculated as Revenue less Expenses. Other than COGS,
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Accounting_FInancial_Statement_Interrelated - Accounting is...

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