This weekend, we're covering the basics:
- balance sheets
- income statements
- retained earnings statements
- cash flow statements
The basic accounting equation is assets=liabilities+stockholders equity. This is the balance sheet. The foundation for the balance sheet begins with the income statement, which is revenues-expenses=net income or net loss. This is followed by the retained earnings statement, which is beginning retained earnings+net income-dividends=ending retained earnings or beginning retained earnings-net loss-dividends=ending retained earnings.
Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.
I am currently a business school student in the Pharmaceutical and Healthcare Executive MBA program at Saint Joseph's University Erivan K. Haub School of Business in Philadelphia, PA. The Nationally-ranked and AACSB-accredited Haub School of Business, centrally located in the mid-Atlantic pharmaceutical and healthcare corridor, is able to bring together industry experts and a world-class faculty for a unique industry-focused, immersive executive program.
You can read about my business school experience by reading all the blog posts tagged "Business School Blog."