- Shareholders’ Equity = Assets – Liabilities
Asset: Item with future value
- Current/Long term assets: liquidity (how fast it can be transferred into cash)
- Intangible asset: A RIGHT!
- How do you know it exist? Because you have a document to prove that
Financial Accounting:
- Produced for EXTERNAL STAKEHOLDERS
- Focus on the HISTORIC INFORMATION
- Tabulation of FINANCIAL STATEMENTS
- Comply with GENERAL ACCEPTANCE ACCOUNTING PRINCIPLES
Key statements:
- Income statement
- Balance Sheet
- Statement of Cash Flows
Balance sheet considers:
Assets: What company OWNS
- cash, equipment, property
Liabilities: What the company OWES
- Bonds, bank loans
Equity: What the company have RETAINED EARNINGS AND SHARES
Cash Flow
Current Ratio: CA/CL