Accounting

• In accounting, numbers in parenthesis and/or in red are negative.

Two Types

• Cash Accounting
  • Cash received for sale is revenue
  • Cash spent are expenses
  • Cash left is profit
  • Used only by very small businesses, where all transaction are in cash
• Accrual Accounting
  • Matching Principle
    • Match the cost with its associated revenue to determine the profits in a given period of time.
    • Goal is to properly represent state of business
  • Need to Estimate or accrue revenue and/or expenses to implement the Matching Principle
  • Required to meet Matching Principle and GAAP
  • Business runs on credit
  • Business spends cash in short term to support future sales