ACCOUNTING

ACCOUNTING

What are many of the activities that a business engages in focused on?
1. Financial worth
  1. How much money did a business make in a year?
  2. How much can a business afford to spend on a new store additon?
  3. How can a business reduce its expenses?
What is the difference between profit and income?
1. Profit is the number you get from subtracting your expenses from your income: how much you are making after your expenses
2. Income is sales and any other money recieved (revenue)
Why is it important for businesses to take accounting procedures such as tracking their income and expenses?
1. They need to make sure they are making enough money in order to purchase more stock
2. To be sure they are making more money than they are spending
What is the purpose of accounting?
1. To record, analyze and interperet the economic activities of a business
What is the differnce between a liability and an asset?
1. An asset is something (a resource) that has value and is owned/controlled by an individual
2. A liability is a debt/amount that is owed to others, this occurs when one aquires more and more assets of higher value and has to rely on credit to help pay for them
Why is it important to determine the worth of a company?
1. If you want to sell part (or all) of your business it is important to know the value of it
2. For business planning and future desicion making
What is owner's equity? How can you calculate owner's equity in a business?
1. Owner's equity represents the owner's share of the assets in a business; assets can only belong to people outside of the business that you owe money to (liabilities) and the owner themselves (owner's equity)
  1. assets - liability = owner's equity
What is a balance sheet and what is the purpose of them?
1. A device used to record and summarize financial information
  1. they state information about assets, liabilities, and owner's equity

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