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The enlightened accountant
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Transcript of The enlightened accountant
The Power of Accoun.ng
Officially Born in 1494, when a Vene5an Merchant, Luca Pacioli, in his ”Summa de Arithme5ca, Geometria, Propor5oni ed Propor5onalita described for the first 5me the double-‐entry system
“You have to understand accoun0ng and you have to understand the nuances of accoun0ng. It’s the language of business and it’s an imperfect language. Unless you are willing to put in the effort to learn accoun0ng – how to read and interpret financial statements – you really shouldn’t select stocks yourself” Warren Buffet
GAAP Principles – 10 Commandments • Economic En5ty Assump5on • Monetary Unit Assump5on • Time period Assump5on • Cost Principle • Full Disclosure Principle
• Going Concern • Matching Principle • Revenue Recogni5on Principle • Materiality Principle • Conserva5on Principle
Cash vs. Accrual • Cash Basis: Record transac5on when cash has been disbursed or received
• Accrual Basis: Record transac5on independently from cash disbursement or receipt
The General Ledger • Big book • All transac5ons for a certain period are collected • Reports are produced: BS, IS (P&L), CFS
Income Statement Example,)Company)XYZIncome)Statement)January)thru)December)31,)Year)1
Year)1Revenue 6,000COGS 4,000Gross)Profit 2,000Advertising (100)Salaries;and;Wages (600)Phone;and;Internet; (34)Depreciation;Expense GOffice;Supplies (25)
Total;Operating;Expenses (759)Operating)Profit 1,241Interest;Expense (200)Interest;Income GProfit;Before;Tax;(EBT) 1,041Tax (141)Net)Profit) $900
Revenue – Cost = Profit