Understanding GAAP Measures and the Accounting Cycle: A

know GAAP measures what it is / stands for *Accounting Cycle Data trail EBIDA : earnings before At the end of each accounting period, the dollar amounts in all the revenue & expense accounts are moved into retained earnings, one of the owners' equity accounts. Revenues increase owners equity. Expenses decrease. The resulting change in the owners' equity account is equal to the net income. Zeroing out the balances enables a company to count how much it has sold & how many expenses have been incurred during a period of time . The accounting equation In ( Assets = liabilities + owners equity ' will not balance until the revenue & expense account balances have been moved or " closed-out " When a corp. elects to pay dividends, it decreases the cash account (in the assets category of the balance sheet)& a capital account (owners'equity category of balance) balance sheet- a snapshot of an orgs finanancial position at any given moment Indicates what the org owns or controls & the various sources of the funds used to pay for these assets ( bank debt & owner's ' equity ) An accumulation of all financial transactions . Assets must equal liabilities + owners' equit. 2 Formats for Balance Sheet Traditional balance sheet - places ong's assets on the left & liabilities & owners' equity on the right Vertical format - assets on top followed by liabilities & owners' equity . All assets are listed in descending order of liquidity how quickly each can be turned into cash . current assets- used or converted w/ in the course of a calendar year. ( short- term ) Cash is followed by temporary investments, accounts receivable, & inventory accounts receivable - money owed a company by its clients or customers who have promised to pay for the product at a later date . Allowance for bad debts . Baddebts adjustment is normally based on historical collections experience & is deducted from AR balance to present a more realistic view of the payments to be received - net receivables . Inventory may be held in the form of raw materials , WIP , or FG for delivery . fixed - long-term investments (plants, equipment, & intangible assets " goodwill or reputation ( also patents or trademarks ) current liabilities - a firms financial obligations to short-term creditors which must be repaid w/in one year . accounts payable - the amount a company owes to suppliers for g&s purchased w / credit accrued expenses - all unpaid financial obligations incurred by an org . Owners' equity - the owners contributions to the org. along w/ income earned by the org. & retained to finance continued growth & development . If the org . were to sell off all its assets & pay off its liabilities, remaining funds belong to Owners. Statement of cash flows - explains how the company's cash changed from the beginning of the accounting period to the end . Change in Cash is explained through details in three categories. 1. Cash from (used for) operating activities: calculated by combining the changes in the revenue, expense, current asset , & current liability accounts . Includes all accounts on the balance sheet that relate to computing revenues & expenses for the period . If the amount is positive , then the business is making extra cash it can use to invest in increased long-term capacity or to pay off debts ( loans or bonds)