ACCOUNTING- process of identifying, measuring and reporting financial information of an entity ACCOUNTING EQUATION- assets=liabilities+ equity ACCOUNTS PAYABLE-

money owed to equity to creditors, vendors ACCOUNTS RECEIVABLES- money owed to a business ACCRUED EXPENSES- expense recognized in the books before it is paid for ASSET- property with a cash value that is owned by a business or individual BALANCE SHEET- summary of a companys financial status, including assets, liabilities, and equity COST ACCOUNTING- type of accounting focuses on reading, defining, and reporting costs. CREDIT- account entry with negative value for assets and positive value for liabilities and equity DEBIT- positive value for assets and negative value for liabilities and equity DEPRECIATION- decrease in the value of an asset EQUITY- money owed the owner or owners of a company, also known as owners equity FINANCIAL ACCOUNTING- accounting focused on reporting an entitys activities to an external party FINANCIAL STATEMENT- record containing the balance sheet and the income statement FIXED ASSETS- long-term tangible property INCOME STATEMENT/ PROFIT LOSS STATEMENTsummary of income and expenses LIABILITY- money owed to creditors, vendors LIQUID ASSETS- cash or other property that can be easily converted to cash LOAN- money borrowed from a lender and usually repaid with interest NET INCOME/ PROFIT- money remaining after all expenses and taxes have been paid. NON-OPERATING INCOME- income generated from nonrecurring transactions REVENUE- total income better expenses EXPENSES- use of generating the income BALANCE SHEET- book value of assets and liabilities; financial health of the business BALANCE- assets= liabilities PROFIT AND LOSS ACCOUNT- figures that show how much profit or loss a business has made over a period BALANCE SHEET: COMMON MISTAKES: -believing that the balance sheet figures represents market value -purpose is to form a range of accounting reports used for measuring business performance along with other reports like financial reports like profit and loss account and cash flow statements - Forgetting that the balance sheet is valid only for the date at which it is produced -Confusing over whether in fact all assets and liabilities are shown in the balance sheet. PROFIT AND LOSS ACCOUNT: COMMON MISTAKES: -P&L is not an explanation of the cash coming into and going out a business - Assuming that the bottom line represents cash profit from trading CASH FLOW STATEMENT: COMMON MISTAKES: Confusing cash and profit - A cash flow statement does not show profit. It is Entirely possible for a business with a loss to show an increase in cash and be a loss. What does an increase in Accounts Recievables mean in terms of liquidity

- The more often accounts receivable turn over, the more often you exchange accounts receivable for cash and the more you extend its nearness to cash What does an increase in Accounts payables mean in terms of liquidity -The more often you pay your bills, the less money you can keep and the less liquid you will be. HORIZONTAL ANALYSIS - Compares two financial statements to determine dollar and percentage changes. VERTICAL ANALYSIS- relationship of each item to a base amount on financial statements WORKING CAPITAL- measure of amount of current asset remaining after all current liabilities have been paid = current assets- current liabilities CURRENT RATIO- measures ability to pay current assets with current liabilities =Current assets current liabilities ACID TEST RATIO( QUICK RATIO)- if the entity could pay all its current liabilities if they came due immediately. QUICK ASSETS- cash, short term investments, net current receivables = current assets- inventory QUICK RATIO= quick assets current liabilities INVENTORY TURNOVER- how many times year the company sells its average level of inventory = cost of goods sold average inventory *Average inventory (beginning inventory + ending inventory)/2 ACCOUNTS RECIEVABLES TURNOVER- how quickly the company collects cash from credit customers = net credit sales (pautang) average net accounts recievable (days/times) *Average accts recievables= (beginning +ending )/2 DAYS SALES RECIEVABLES- how many days sales remain uncollected in accounts recievables -Average net accounts receivable one days sale *One days sale= net sales/365 days DEBT RATIO- proportion of companys assets finance with debt - total liabilities total assets TIMES-INTEREST-EARNED ( Interest coverage)- how many times operating income covers interest expense = income from opretations interest expense -income from operations= income before tax & interest expense RATE OF RETURN ON NET SALES (Profit margin)-percentage of each sales dollar that is earned as net income =net income net sales RATE OF RETURN ON TOTAL ASSETS- how successful the business is in using assets to earn a profit = net income + interest expense average total assets RATE OF RETURN ON COMMON STOCKHOLDERS EQUITY- how much income is earned for every dollar invested by the common stock holder =net income- preferred dividends average common stockholders equity TRADING ON THE EQUITY(using leverage)- company borrows at a lower rate then invests the money to earn a higher rate, EARNINGS PER SHARE OF COMMON STOCK- income generated by one share of stock =net income-preferred dividends number of shares of common stock outstanding PRICE/EARNING RATIO- the market price of a dollar of earnings =market price per share EPS( earnings per share) DIVIDEND YIELD- percentage of stocks market value that is returned annually as dividends = dividend per share market price per share BOOK VALUE PER SHARE OF COMMON STOCK- amount of equity one share of common stock has in the company =total stockholders equity- preferred equity number of shares of common stock outstanding