Got,love,that,accounting,equat business, insurance Got to love that accounting equation

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A company’s financial position indicates the amount of resources that theyhave, and also the claims against those precious resources at any time.  Claims can also be referred as equities. So,a company can be known as a combination of economic resources andequities.  Economic Resource=Equities. Nomater what type of business your in, every type of company has two differenttypes of equities. They are creditor’s equity and owner’s equity.  In another way Economic Resources= CreditorsEquities +Owners Equity.  When usingaccounting language, the economic resources a company has at a particular timeis called their assets?  On the other handthe amount of creditor’s equity a company has is known as their liabilities.   So here is the standard equation of accounting or better known as the accountingequation: Assets=Liabilities + Owner’s Equity. Similar to an algebraic equation, both sides of the equation has to beequal. This equation comes in handy when analyzing the financial effects ofyour everyday business activities. Let’s talk about a very important concept ofany business. Assets are known as the economic resources that a business hasthat are expected to generate money for them in the future.  Some examples are real estate and any otherproperty that a business own so that they can rent out to people.  If a business is owed money than it goes intowhat is known as accounts receivable which are monetary items. However, thereare some assets that are not physical. Some examples are copyrights,trademarks, and patents, but they are still extremely valuable to abusiness.   Next, liabilities are the obligations that a business has such as payingcash, provide future services to individuals, or transferring assets to anotherentity.  These are known as the debt of abusiness or the money that they have to owe in the near future. All of theseare recorded in the accounts payable.  AsI’m sure you know, having a lot of debt is not fun and liabilities/debt areclaims that are seen by the law. The law gives creditor (People that money isowed to) the right to push the sale of a company’s assets if they don’t paytheir debt on time.  Creditors have a tonof rights over owners and they have to be paid in full even before the ownersreceive anything. It is very possible for a debt to consume up all a company’sresources. Next, owner’s equity refers to the claim that owners of a businessmake in regards to the assets they have. It is the residual interest or theremaining assets of a company after deducting the amount of entityliabilities.   Here is the equation for owner’s equity. Owner equity=Assets-Liabilities.The owner’s equity within a particular corporation is referred as stockholdersequity, so the equation then looks like this. Assets=Liabilities +Stockholder’sEquity.  The stockholders equity has twodistinct parts which are the contributed capital and retained earnings.  Stockholder’s Equity=Contributed Capital +Retained Earnings. The amount than an individual stockholder puts into abusiness is known as the contributed capital. Contributed capital is usuallydivided into two separate parts known as par value and “par value” and“additional paid in capital.”  The retainedearnings are the amount of equity that is earned by stockholders from theincome generating activities of a business that are kept for future uses by abusiness. Retained earnings are affected by three types of transactions whichare revenues, expenses, and dividends. The increase and decrease in a stock are known as revenues and expensesrespectively and these come from operating a business whether online oroffline. If you’re online than an operating expense that you will have if youhave your own website is your domain name and hosting service. Another exampleis if a customer agrees to pay you in the near future for a service that thecompany will perform.  The money is recorded in the accounts receivable (asset account)which increase the asset value but decrease the stock holder’s equity amountwhich is an example of revenue. However, if a company promises to provide aservice in the future than this is known as an expense. When this happens theassets decrease (accounts receivable) and the liabilities (accounts payable) isincreased, which makes pretty good sense right? When the revenues exceed theexpenses this is known as the net income which is good, and on the other handwhen expenses are greater than revenues than this is known as net loss whichmeans that you’re losing business or your business costs more to operate thanwhat you make. Dividends are the distribution of assets to stockholders whichrefer to the past earnings.   Do not confuse expenses withdividends, because they both are reducing the retained earnings amount.Retained earnings are the collected net income or revenues minus expenses.  The financial statements are the main way forcommunicating information about a business to those who have some type ofinterest in it. What helps me is to think of these statements as a type ofmodel for business because they show how a business is doing in financialterms. However, like a variety of methods and models, financial statements arenot perfect and have their flaws. There are four main financial statements, andthey are income statement, the statement of retained earnings, the balancesheet, and the statement of cash flows. What the income statement does is summarize the revenues earned or themoney made, and the expenses or the money that is deducted from a business.Many accountants consider it the most important financial report because itmakes it clear whether a business has met its profitability goal.   The next one is the statement ofretained earnings, and it displays the retained earnings over a period oftime.  The time that the retainedearnings will be zero is when a company first started out in their accountingperiod. A lot of companies use the statement of stockholder equity as asubstitute of retained earnings. This is a more detailed statement because itdisplays not only the aspects of retained earnings but it also shows thechanges in the stockholders equity accounts. Next, the financial situation of a business on a particular date,usually on the end of the month or the year is the balance sheet.  The balance sheet displays the value of abusiness according to their assets and the claims against those assets whichare the liabilities and the stockholders equity.   Last, the statement of cash flowsis geared towards a company’s liquidity measures.  They are basically the flow and outflow ofcash in a company.  The net cash flow isthe subtraction between the inflow and outflow of money.  The statement of cash flows also display themoney generated by simply operating a business, and it also displays theinvesting and financing transactions that occurs during a particular accountingperiod.