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Accounting: The Equation, Assets = Liabilities + Stockholders Equity

725 words - 3 pages

The main reason to have accounting is to be able to keep up to date and valid financial records of all aspects of your business. Without accounting and finance it would pretty much be a free for all when it comes to buying, selling, and providing customers with the support they need. Accounting keeps companies from lying about profits and losses that might affect investors. Businesses have to provide some sort of service, and doing this usually requires a change in currency, which needs to be recorded in great detail.
One of the largest concepts in accounting is the equation, Assets = Liabilities + Stockholders Equity. Assets are economic resources owned by the company such as cash and ...view middle of the document...

This document usually has the assets on the left and liabilities on the right. The balance sheet is the only financial statement that corresponds to one specific time in the business year. The second financial statement, the income statement, shows the results of an entity’s operations in a given time (usually one year). This statement can be presented by a different equation, Net Income = Revenue – Expenses. This calculation shows how much cash shareholders would be given if the company arranged to distribute all of the net earnings for the given time period. The statement of owner’s equity explains the changes in retained earnings. The last financial statement is the cash flow statement. The cash flow statement can show your company’s ability to pay bills. Cash flow also denotes a breakdown of all transactions in a business. Usually cash flow statements are put in three parts; operating activities, investing activities, and financing activities.
Revenue is the income a business makes from normal business operations. Revenue has several effects on the financial statements. An increase in revenue will cause increases in net income on the Income Statement, and cause increases in retained earnings on the Balance Sheet. ...

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