Accountant versus Business Consultant

This is the second article in our business face-off series. Previously, we have brought vis-à-vis the entrepreneur and the employee. This time we will bring face to face the two professionals who play very important roles in business life cycle. Accountants, as we usually know, are responsible for recording, analyzing, summarizing and reporting an entity’s economic transactions. On the other hand, business consultants are the ones who analyze an entity to search for business flaws or rooms for improvements. To better distinguish the two, let’s now start our business face-off. Read more

Sample one-year and two-year comparative balance sheet statements

In my previous post, I wrote about understanding the balance sheet. Balance sheet shows the financial condition of a particular business entity. Reading and understanding balance sheet is very important for short-term and long-term analysis. This statement is the ultimate financial statement since income statement’s net profit is forwarded and closed in the retained earnings (which is shown in the equity section of the balance sheet); cash flow statement is netted to cash and reported as current asset in the asset section of the balance sheet; and the equity in the statement of changes in equity is also forwarded as equity in the balance sheet. Read more

Understanding the Balance Sheet

A balance sheet is a formal statement showing the financial position of an entity as of a particular date. The balance sheet is the only financial statement that reports as of a particular date compare to income statement, statement of changes in equity, and cash flows which all reports for a particular period of time. The balance sheet presents the three elements of financial position, namely assets, liabilities and equity.

Assets are defined as resources controlled by the entity as a result of past transactions and events and from which future economic benefits are expected to flow to the company. In layman’s language these are the properties owned by the entity. Read more

What is basic accounting?

According to American Institute of Certified Public Accountants (AICPA), accounting is “the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.”

Basically, accounting is the process of identifying, measuring and communicating economic information so a user of the information may make informed economic judgments and decisions based on it.

From the definition above, there are three important activities in the accounting process, namely identifying, measuring and communicating. Read more

Understanding income and the difference between a revenue and a gain

What is income?

Income is defined as “increase in economic benefit during the accounting period in the form of inflow or increase in asset or decrease in liability that results in increase in equity, other than contribution from equity participants”.

Simply stated, income is an inflow of future economic benefit that increases equity, other than those that are contributed by owners. It specifically increases retained earnings in the equity section of the balance sheet.

Income is derived from the following activities: Read more

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