Accounting Terms & Procedures

Accounting professionals practice according to Generally Accepted Accounting Principles (GAAP). These practices are developed and overseen by the Financial Accounting Standards Boards (FASB) and the American Institute of Certified Public Accountants (AICPA). Basic knowledge of these standards and of accounting terminology assists investors and consumers in making financial decisions.

Reporting

Statements which show a company's financial position within a given period of time must be issued and audited quarterly and annually. There may be additional reporting periods required depending upon the industry in which in the company operates and the manner in which it was incorporated.

Reports

Four of the basic reports required for any company are the balance sheet, the income statement, the statement of cash flows and the statement of shareholders' equity.

Balance Sheet

A balance sheet is comprised of three elements: assets, liabilities and shareholders' equity. A company's assets will be listed on the left side of the sheet, its liabilities and shareholders' equity on the right; assets must always equal the sum of a company's liabilities and its shareholders' equity.

Income Statement

An income statement is a representation of a company's revenues, expenses and net income. Net income is derived by subtracting a company's expenses from its revenues.

Cash Flows

Cash flows come from three sources: operations (e.g., receipts, taxes, rent, payments to vendors, payroll); investments (e.g., major equipment purchases); financing (e.g., loan proceeds).

Shareholders' Equity

Shareholders' equity is equal to the sum of stock (common and preferred), capital paid into the company and any retained earnings.

References

• CPA Class
• Street Authority
• Accounting Institute Seminars

Resources

• Bizmanualz