Break-Even Point: The activity, practice, or profession of maintaining the business records of a person or organization and preparing forms

and reports for tax or other financial purposes. The point or level of financial activity at which expenditure equals income or the value of an investment equals its cost, with the result that there is neither a profit nor a loss.

Budget: A plan specifying how resources, especially time or money, will be allocated or spent during a particular period. Capital Expenditure: Expenditure for permanent additions or improvements to property, as opposed to money spent for repairs. Capital Gain: Profit from the sale of capital investments, such as stocks and real estate. Capital Goods: Materials used in industry in the production of consumers' goods. Capital Stock: The amount of stock that a company issues or the value of that stock. Capitalism An economic system in which the means of production and distribution are for the most part privately owned and operated for private profit. Also the possession and concentration of private capital and its resulting power and influence. Credits: The right-hand side of an account record, where payments to the account are recorded. Current Assets:

Available cash and other assets that could be converted to cash within a year. Current Liabilities: Business liabilities that are due to be cleared before the end of the financial year. Current Ratio: The ratio of current assets to current liabilities.

Depreciation: The amount or percentage by which something decreases in value over time, usually one year. Double-Entry Accounting: A system of recording transactions in a way that maintains the equality of the accounting equation which is assets=liabilities+owner's equity. The double-entry system records each transaction as both a debit and a credit. Drawing Account: A company account from which a company employee may draw money for expenses or as an advance against a future salary payment. Equity: In accounting terms, after all liabilities are paid, ownership equity is the remaining interest in assets. Fixed Assets: An asset of a business that is central to its operation and is not traded. Income Statement: A financial statement showing the profit or loss sustained by a company during a particular period, including all items of income and expenditure Inventory: A record of a business's current assets, including property owned, merchandise on hand, and the value of work in progress and work completed but not sold. Journal:

A book for recording daily transactions, especially in double entry bookkeeping, using a formulaic style to ensure their correct entry in a ledger. Journal Entry: An entry made into the Journal recording daily transactions. Journalize:To enter in a journal. To write or describe in a journal. To keep a journal or diary. Jumble: To mix in a confused mass, put or throw together without order. Ledger: The principal book of accounts of a business establishment, in which all the transactions of each day are entered under appropriate heads so as to show the debits and credits of each account Liability: The state of being liable, or exposed to some accidental or incidental result or occurrence. The condition of being responsible for a possible or actual loss, expense, or burden. That for which on is liable, in the plural, debts as opposed to assets. Liable: Exposed, as to damage, penalty, expense, burden, etc. Line Of Credit: The amount of credit that a customer is allowed to draw on. Linear: Pertaining to or composed of lines. Very narrow and elongate. Denoting a measurement in one dimension. Pertaining to an equation of the first degree.

Accounting computing capital and current ratio?

I've done a bit of this so far but am a bit confused. Here is what I'm given to compute the working capital and current ration on the balance sheet. Cash $50 Accounts Receivable $8 Prepaid Insurance $12 Land $25 Building $12 Equipment $14 $121 I've concluded that for current assets its Cash, AR, and Prepaid Insurance so the total adds to $70. Is this right? But then for Liabilities I am given. Accounts Payable $9 Wages Payable $5 Mortgage Payable (Long Term) $50 Capital $57 $121 Is the current liabilities $14? I don't understand the Capital part of it added. Isn't it just 70 - 14 to get working capital? Then divide by themselves to get current ratio? Please help!

Additional Details
P.S I got the $14 in current liabilities by only accounting for Accounts Payable and Wages Payable. I don't think mortgage payable is calculated into it and am confused with the Capital...

Best Answer - Chosen by Voters

Capital is another name for Owners Equity. Remember the basic accounting formula of: Assets = Liabilities + Owners Equity. In this case Assets = $121 Liabilities = $64

Owners Equity = $57 You are correct in your computation of Current Assets and Current Liabilities. Current Assets = Cash $50 Accounts Receivable $8 Prepaid Insurance $12 Total = $70 Current Liabilities = Accounts Payable $9 Wages Payable $5 Total = $14 Working Capital equals Current Assets - Current Liabilities So $70 - $14 = $56 So Working Capital = $56

Source(s):
35 years of accounting experience Indemnity: Security against damage or loss, protection, compensation Accruals

The business transactions can be grouped under three types of accounts : y Personal accounts y Real accounts y Nominal accounts Personal Accounts Personal accounts are the accounts of persons or firms that the business deals with. These are primarily of three types : y Natural persons account : These are accounts of real persons who transact with the business in various capacities. The proprietors account and the accounts of customers are some examples of natural persons accounts y Artificial persons accounts : These are accounts of firms and entities that transact with the business. The accounts of a limited companies or banks that are not real persons are the examples of artificial persons accounts. y Representative personal account : These are accounts that represent certain person or persons. If a business has not paid the rent of a number of shops for the past two months then all landlords are creditors of the business and the amount due to them is recorded under a common head called Rent Outstanding Account. This is a representative personal account. Other examples of representative personal accounts are Interest Outstanding and Interest Paid in Advance accounts. Real Accounts Real accounts are the accounts of the properties, assets and possessions of a business. These can be of two types : Tangible Real accounts: These are accounts of things that can be touched, measured, sold or purchase. Examples of tangible real accounts are land account, furniture account and cash account. Intangible Real accounts: These are accounts of things that cannot be touched in the physical sense but can be measured in terms of money value. Trademark or patent rights are examples of intangible real accounts. Nominal Accounts Nominal accounts are the accounts of each head of expense or income of a business. They are used to define the nature of the transactions; hence, they are also called fictitious accounts. Without nominal accounts, it is very difficult for the management to find out where the money was spent. As these accounts are used to define the nature of the transaction they are nominal accounts. Certain rules have to be followed for the different accounts to decide which account has to be debited and which has to be credited. It is also important to understand whether the transaction has to be posted n the debit side or the credit side of an account.

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What Are Basic Financial Accounting Concepts?

This article was created by a professional writer and edited by experienced copy editors, both qualified members of the Demand Media Studios community. All articles go through an editorial process that includes subject matter guidelines, plagiarism review, factchecking, and other steps in an effort to provide reliable information. By Jerome Felix , eHow
Contributor

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Financial accounting preserves business operations in ledgers as financial transactions. A series of these transactions shows business owners, company owners, and investors how a company is doing financially. Financial records facilitate the use of financial ratios to get more details on a business' operations and standing. If any information on these statements or accounting books doesn't match a cash and inventory count, the business or company is forced to scrutinize its operation to resolve the differences.

1. Cash and Accrual Types of Accounting

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Cash accounting is based on cash transactions. For example, if a merchant sells a lamp on credit, he doesn't account for the sale until he receives cash. Once the bank processes the payment and puts cash in his account, he registers the sale. An expense isn't counted on the books until it's paid. Under the accrual accounting method, the transaction is recorded as soon as it is made. For example, a merchant using accrual accounting records every sale immediately, even if she has not yet received payment. She also records expenses as they're incurred.

Balance Sheet
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Current assets are money generating items that can be converted to cash within a year. Checks, money orders, and accounts receivable are included in this category. Non-current assets take longer than a year to convert to cash. This includes buildings, factory, factory equipment, computers, and any equipment the business uses to make money. Liabilities are the company's financial obligations, such as bills. Liabilities that must be paid within a year are current liabilities; those that will be paid over a year are long-term liabilities. Owner's Equity represents money the owners have invested in a company. Total assets on the balance sheet must match the sum of total liability and owner's equity; Assets = Liability + Owner's Equity.

Income Statement

Net Sales is the total sales the business made over their accounting year. "Cost of Goods Sold" represents how much the company spent to make these goods. "Gross Income" represents the total amount of money the company made during the accounting year. "Selling General and Administrative Expenses" are what the company paid for operations not directly involved with making the goods. "Operating Income" represents the profit the company made from its operations. "Income Before Taxes" is the total profit the company has before taxes. "Income After Taxes" is the money the company has left over after taxes are paid. The basic concept behind the Income Statement is represented by the formula; Revenues - Expenses - Taxes = Net Income.

Cash Flow Statement

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This statement represents cash entering and leaving a business operation. This statement measures cash movement with operations, investing, and financing. This statement starts with the net earnings for the fiscal year that just ended. It lists additions to, and subtractions from, cash. The additions are added to the net earnings to come up with a new sum. The cash subtractions are subtracted from this new sum, and the results are listed as "Net Cash from Operations." Cash flow from investment is added to this new net amount. Cash flow from financing is subtracted to provide the new cash flow for the fiscal year that just ended.