After having just completed an accounting 201 course, it has come to my attention just how important accounting is to the business world and individuals. Accounting is defined as the art of recording, classifying, and summarizing in terms of money transactions and events, which are of a financial character. With that definition in mind it is clear that accounting is the language of business, due to the fact that finances are a vital part of any business. However, everyone works with and uses accounting concepts, whether operating a business, investing money, or just choosing how to spend a paycheck.uniform guidance single audit

A concept of accounting that i learned from having completed accounting 201 was financial statements. In my accounting 201 course, we discussed the basic types of financial statements that include statement of cash flow, income statements, and balance sheets. By using these statements, a business or an individual can make informed decisions based on their finances. The first financial statement that will be reviewed is the cash flow statement.

The cash flow statement is the financial document that shows income actually received and expenses actually paid. A cash flow statement is different from the balance sheet or income statement due to the fact that it does not incorporate the amount of future incoming and outgoing cash that has been documented on credit. This financial document instead presents cash balances, cash in-flows, cash outflows, and ending cash balance. The cash flow statement lists any sources of cash coming into the business after the beginning balance, then it records any uses of cash by your business. Cash in the statement of cash flow falls into one of the following categories, operating activities, investing activities, financing activities, and supplemental information.

Next type of financial document will be discussed is the income statement, an income statement is a financial document which demonstrates income earned and expenses incurred. The resulting difference between your income and expenses is referred to as your net profit. Net profit makes it evident whether your business is profitable or not. In order to obtain the net profit you take the businesses income minus the cost of sales, this will give you the gross margin. Once you have the gross margin, you minus fixed operating expenses and the result is net profit. Now to breakdown each part of the income statement, first is income. Income is the money or credit that has been earned from selling a good or service. Next is the cost of sales, which are the costs of doing business such as direct labor, materials, and shipping. The gross margin is the result from cost of sales being subtracted from income. Gross margin is valuable to any business because it is the money left over to pay for any expenses of being in business and for producing a profit. Next are operating expenses, which are fixed expenses that include insurance, rent, salaries, advertising, utilities, and interest payments. After all of that is calculated the result gives your net profit.

The last financial statement that will be examined is the balance sheet; a balance sheet depicts the financial condition at a point in time of your business. To determine the financial condition this accounting equation is used, Assets = Liabilities + Owners Equity. The aspects that make up assets include current assets and fixed assets. Current assets are cash assets that can be converted into cash within one year. Fixed assets are property and equity owned by a business that are not necessarily intended for sale and are used over and over again. Moving to the other side of the accounting equation there are liabilities. Liabilities are when you owe someone else you a liable to that individual or company until you pay it off. Accounts often seen in liabilities include accounts payable, notes payable, and salaries payable. The last phase of the balance sheet is owners equity, which is the part of the assets that the owner has claims to after all the liabilities are paid. The balance sheet should always for the most part come out to be even; if it does not usually some type of event was documented properly or overlooked and can be easily corrected.