Free Business Accounting Software Ver 1.0BALANCE SHEET FEATURES
Balance sheet (statement of financial position) shows the ending balances of assets, liabilities, and equity at the end of the accounting period
Mechanics Assets always equal liabilities plus equity, (which forms the accounting equation)
ASSETS
Current assets To be used within one year of the balance sheet date or longer, if the operating cycle is greater
Current assets Cash and equivalents, accounts receivable, inventory, prepaid expenses to be used within a year
Long-term assets Expected benefit greater than one yearExamples: property, plant, equipment, intangible assets (copyrights,trademarks, goodwill)
Accounts receivable (AR) Cash due from customers who have purchased goods or received services not yet paid for
Inventory Goods for sale or manufacture, valued under GAAP at lower of cost or market
Prepaid expense Expenses paid in advance, considered an asset until used (such as a two year insurance policy)
Accumulated depreciation | amortization The sum of all priordepreciation | amortization (contra asset) increases with a credit and offsets the value of depreciable assets reported at cost
LIABILITIES
Current liabilities Obligations due in one year or less
Long-term liabilities Debts owed to creditors, due in more than oneyear from the balance sheet date
Accounts payable (AP) Money owed to creditors and vendors
Notes payable Debts owed to banks or other creditors based onwritten agreements
Accrued expenses Expenses incurred before the end of the accounting period, but not yet paid for
Deferred revenue Cash received in advance, but not yet earned
Long-term bonds payable Money borrowed to finance company operations, due in more than one year
SHAREHOLDERS’ EQUITY
Common stock Sold to investors for ownership of a corporation
Preferred stock Investors receive dividends before common stockholders and usually do not have voting rights
Additional paid-in capital Investment received by corporation,in excess of par value per share (APIC = Issuance price - Par value)
Par (stated) value Per share amount on stock certificates, also referred to as legal capital (no relation to market value)
Retained earnings Sum of all previous profit and losses, less dividends
Treasury stock Stock repurchased by company
Dividends Corporate profits paid to shareholders from retained earnings (not an expense)
INCOME STATEMENT FEATURES
Income statement (profit and loss) shows the performance of a business by reporting revenue earned minus expenses incurred to equal net income or loss (profit or loss)
Mechanics Reports the business activity for a specific period of time and results in net income or loss, which gets recorded to retained earnings at the end of the accounting period
REVENUE AND EXPENSE
Revenue recognition Recognize (book into accounting record) revenue when it is earned and realizable Expense recognition Expenses are recognized when incurred, as goods are used and services received Net income or loss Revenue minus expenses results in net income or net loss also referred to as profit or loss
Net income increases retained earnings and net loss decreases retained earnings
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reference : Accounting Cheat Sheet by John Gillingham , CPA
