Management 2

• universal language of business
• converts raw data into something used to make business decisions 

accounting period, GAAP, accounting methods 

length of time covered by a financial statement

usually 1 year and calendar year 

can also have interm statements (less than a year reports) 

set of accounting principles and procedures that guide the preparation of financial statements 

cash= income and expenses are recorded when they are paid

accrual= income and expenses are recorded when they are incurred (once money comes in)

balance sheet

income statement

statement of cash flow

statement of owners equity

statement of business financial position

one point in time 

assets= liabilities + owners equity

tangible or intangible

current or fixed

tangible= have physical form 

intangible= are not physical but still have value 

current= asset expected to be sold in less than 1 year ( cash, CD, accounts, inventory)

fixed= asset expected to be sold in more than 1 year (building, computer, equipment)

how quickly assets can be converted into cash

on balance sheet listed in decreaseing order of liquidity (most liquid first)

a debut that needs to be re paid

current or fixed

current= items that must be paid in less than 1 year (salary, income tax)

fixed= items that must be paid back in more than 1 year (mortgage, loan)

2 souces- contributed cash and retained earnings 

the amount invested in a business by the owner

money the owner puts into the business

income earned through operations

profit that is re invested into the company 

profit and loss statement

shows weather a business made a profit

over a specific period in time 

sales/revenue

cost of goods sold (COGS)

gross profit

expenses

net income 

the dollar value of the merchandise sold (amount sold)

the cost of obtaining inventory for the pharmacy

total revenue remaining after subtracting out the COGS

gross profit = sales - COGS

any other expenditures excuding COGS

fixed and variable 

fixed= cannot easily be changed (mortgage)

variable= things you can easily change (advertising)

shows cash in and out over a specific period of time 

assess short term ability of the business to pay its bills (liquidity of the business)

operating activities

investing actvities

financing activities

transactions that determine net income

sales and production of product

impact long term assets

purchase of land or equipment

influences long term liabilities and owners equity

banks and dividends

net income

net loss

dividends paid out 

income earned through operations that is not given to shareholders in the form of dividends 

over a period of time