Financial Accounting

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Financial Accounting by Mind Map: Financial Accounting

1. Accrual Basis Accounting

1.1. We book revenue on the day we make the sale, even without receiving the cash flow.

1.2. Example:

1.2.1. Record $10 in Revenue on income Statement even though we have not yet received the cash.

1.2.2. Show that we have not yet received the cash by recording it as an outflow on working capital in the statement of cash flows.

1.3. Example:

1.3.1. The company gets an electric bill for $10.

1.3.2. This would require a cash inflow on the working capital line.

2. Financial Statements

2.1. Income Statement

2.1.1. Format/Structure

2.1.1.1. Revenue

2.1.1.2. Less: Cost of Good Sold

2.1.1.3. Equals: Gross Profit

2.1.1.4. Less: S,G&A Expenses (Selling, General, & Administrative)

2.1.1.5. EBITDA

2.1.1.6. Less: Depreciation and Amortization

2.1.1.6.1. Depreciation applies to physical assets

2.1.1.6.2. Amortization is depreciation for intangible assets

2.1.1.7. EBIT

2.1.1.8. Less: Interest Expense

2.1.1.9. EBT

2.1.1.10. Less: Taxes

2.1.1.11. Net Income (Loss)

2.1.2. Expensing VS Capitalizing Costs

2.1.2.1. Expensing = Day-to-Day costs of running the business

2.1.2.2. Capitalizing = less frequent maintenance or growth related costs.

2.2. Statement of Cash Flows

2.2.1. Format/Structure

2.2.1.1. Net Income

2.2.1.2. Add: Depreciation and Amortization (Non-Cash Expenses)

2.2.1.3. Equals: Funds from Operations (FFO)

2.2.1.4. Deferred Income Taxes

2.2.1.5. Change in Working Capital

2.2.1.5.1. Receivables

2.2.1.5.2. Inventories

2.2.1.5.3. Accounts Payable

2.2.1.5.4. Accrued Liabilities

2.2.1.5.5. Accrued Income Taxes

2.2.1.6. Cash Flow from Operating Activities

2.2.1.7. Capital Expenditures

2.2.1.7.1. Property

2.2.1.7.2. Equipment

2.2.1.8. Proceeds from the disposal of assets

2.2.1.9. Cash Flow from Investing Activities

2.2.1.9.1. Accounts for: Acquisitions

2.2.1.9.2. Sales of Equipment

2.2.1.9.3. Capital Expenditures

2.2.1.10. Issuance (Repayment) of Debts

2.2.1.11. Dividend Payment

2.2.1.12. Stock Purchases

2.2.1.13. Cash Flow from Financing Activities

2.2.1.14. Change in Cash from all activities

2.2.1.15. Add: Cash at Beginning

2.2.1.16. Equals: Cash at End

2.3. Balance Sheet

2.3.1. Assets (What we own)

2.3.1.1. Current (converted to cash within 1 year)

2.3.1.1.1. Cash

2.3.1.1.2. Inventory

2.3.1.1.3. Accounts Receivable

2.3.1.2. Long-Term

2.3.1.2.1. Property

2.3.1.2.2. Equipment

2.3.1.2.3. Goodwill and Intangibles

2.3.2. Liabilities (What we owe)

2.3.2.1. Current

2.3.2.1.1. Short-Term debt

2.3.2.1.2. Current Portion of Long-Term Debt

2.3.2.1.3. Accounts payable/ Accrued Expenses

2.3.2.2. Long-Term

2.3.2.2.1. Long-Term Debt

2.3.3. Equity (What our Stock is worth)

2.3.3.1. Common Stock

2.3.3.2. Retained Earnings

2.3.3.2.1. Net Income

2.3.3.2.2. Less: Dividends