Financial Accounting Introduction (1/2) – Terminology

Financial Accounting Introduction (1/2) – Terminology

What is accounting?

Accounting is known as “the language of business”. Accounting is the practice of maintaining records of activity within a business. Accountants are responsible for communicating the records with people either inside the company (internal) or outside the company (external).

What is financial accounting?

Financial accounting is the information we give to people outside the company (externally), this will be in the form of financial statements.

Managerial accounting is the information we give to people inside (internally) the company. You can view more about that here.

Ask Yourself

• How is the business activity being measured?
• How is the business activity being communicated?

Types of Activity

The Accounting Equation (A = L + SE)

Assets = Liabilities + Stockholders Equity

Assets- are the total resources that a company has. This could be land, cash, equipment and more.

Liabilities- are the amounts owed to creditors. This could be unpaid bills, debt, loans and more.

Stockholder’s Equity- are the company’s’ owner’s claims to resources (how much the owners own of the company such as stocks)

Some More Simple Terminology

Revenues- are the amounts recognized when a company provides services or makes sales

Expenses- are the costs of providing said services and product sales

Dividends- cash payments to stockholders (note, this is not an expense)

Learn More Financial Accounting

Learn more financial accounting here

See Outside Articles on Financial Accounting

https://en.wikipedia.org/wiki/Financial_accounting

https://www.investopedia.com/terms/f/financialaccounting.asp

Sources

Much of the information in this is from “Financial Accounting, Sixth Edition” from David Spiceland, Wayne Thomas, and Don Herrmann.

Please note, that this is NOT copied information, but much of what I am stating can be considered a “summarized version” of the information in this book.