Tating, Marvel E.

Assignment#1
BSIT – 3E Accounting

1. Income Statement
An income statement is a financial statement that reports a company's financial
performance over a specific accounting period. Financial performance is assessed by giving a
summary of how the business incurs its revenues and expenses through both operating and non-
operating activities. It also shows the net profit or loss incurred over a specific accounting
period.
Unlike the balance sheet, which covers one moment in time, the income statement provides
performance information about a time period. It begins with sales and works down to net income
and earnings per share (EPS).
2. Balance Sheet
A balance sheet is a financial statement that summarizes a company's assets, liabilities and
shareholders' equity at a specific point in time. These three balance sheet segments give investors
an idea as to what the company owns and owes, as well as the amount invested by shareholders.
The balance sheet adheres to the following formula: Assets = Liabilities + Shareholders'Equity

A number of ratios can be derived from the balance sheet, helping investors get a sense of
how healthy a company is. These include the debt-to-equity ratio and the acid-test ratio, along
with many others. The income statement and statement of cash flows also provide valuable
context for assessing a company's finances, as do any notes or addenda in an earnings report that
might refer back to the balance sheet.

3. Chart of Accounts

A chart of accounts is a listing of each account a company owns, along with the account type
and account balance, shown in the order the accounts appear in the company’s financial
statements. “Chart of accounts” is the official accounting term for the display of this information,
which includes both balance-sheet accounts and income-statement accounts.

An account is a unique record for each type of asset, liability, equity, revenue, and expense.
The chart of accounts is a financial organizational tool that provides a complete listing of every
account in the general ledger of a company, broken down into subcategories. Each chart in the
list is assigned a multidigit number to help identify the account type (e.g. all asset accounts might
start with the number 1). Typically, a COA contains the accounts’ names, brief descriptions, and
identification codes.

Using a COA, balance sheet accounts are listed first, that is, assets, liabilities, and
shareholders' equity. Accounts in the income statement - revenues and expenses - are presented
next.
 4. Assets

An asset is a resource with economic value that an individual, corporation or country owns or
controls with the expectation that it will provide future benefit. Assets are reported on a
company's balance sheet, and they are bought or created to increase the value of a firm or benefit
the firm's operations. An asset can be thought of as something that in the future can
generate cash flow, reduce expenses, improve sales, regardless of whether it's a company's
manufacturing equipment or a patent on a particular technology.
An asset represents a present economic resource of a company to which it has a right or other
type of access that other individuals or firms do not have. A right or other access is legally
enforceable, which means that a company can use economic resource at its discretion, and its use
can be precluded or limited by an owner. For an asset to be present, a company must possess a
right to it as of the date of the financial statements. An economic resource is something that is
scarce and has the ability to produce economic benefit by generating cash inflows or decreasing
cash outflows.
5. Liabilities
A liability is a company's financial debt or obligations that arise during the course of its
business operations. Liabilities are settled over time through the transfer of economic benefits
including money, goods or services. Recorded on the right side of the balance sheet, liabilities
include loans, accounts payable, mortgages, deferred revenuesand accrued expenses.
Generally, liability refers to the state of being responsible for something, and this term can
refer to any money or service owed to another party. Tax liability, for example, can refer to
the property taxes that a homeowner owes to the municipal government or the income tax he
owes to the federal government. Liability may also refer to the legal liability of a business or
individual. For example, many businesses take out liability insurance in case a customer or
employee sues them for negligence.

6. Capital / Owner’s Equity

Generally speaking, equity is the value of an asset less the amount of all liabilities on that
asset. It can be represented with the accounting equation: Assets -Liabilities = Equity. Owners'
equity is the total assets of an entity, minus its total liabilities.
This represent the capital theoretically available for distribution to shareholders. The
amount of owners' equity does not necessarily represent the fair value of a business, so the
sale of a business in the exact amount of owners' equity would be purely coincidental. In
reality, the sale price could be substantially different, depending on the perceived value of
the company's cash flows, intellectual property, branding, and other factors as determined
by the acquirer and agreed to by the acquiree.