Business and Personal Finance © 2007

Chapter 20: Financial Accounting

Chapter Summaries

• The accounting equation states that Assets - Liabilities = Owner's Equity. Accounts show the balance for a specific item. Accounts are set up as needed by a business, and may vary depending on the type of business.
• The first five steps of the accounting cycle are to collect and verify source documents, analyze each transaction, journalize each transaction, post transactions to the general ledger, and prepare a trial balance.
• Business transactions are recorded in the general ledger.
• Posting to the general ledger allows you to see the balances in each account.
• A trial balance is a list of all the accounts and their current balances. All the debit balances should equal the total of all the credit balances.
• The income statement is a report of the net income or net loss for an accounting period.
• The balance sheet reports balances for all asset, liability, and owner's equity accounts at the end of an accounting period. It presents the business's financial position.
• The statement of cash flows reports how much cash your business took in and how it was used.