What is accounting?
Accounting is the systematic process of capturing, recording, analyzing and reporting financial information.
What is GAAP?
-Generally Accepted Accounting Principles: puts everyone on the same set of rules
-Set of standards and guidelines
What are the 4 accounting areas?
-Managerial accounting:helps you make internal managing decisions
-Financial accounting:external; report outside the business
-Forensic accounting
-Tax accounting
What is Double-Entry Accounting?
Double-Entry Accounting captures both sides of a transaction.
What are financial statements?
-Capture a firm's financial information
-Balance sheet, Income statement, Statement of cash flows
What are assets?
Assets are what the business owns.
How are assets listed on the balance sheet?
Assets are listed on the balance sheet in order of liquidity.
What is liquidity?
Liquidity is how quickly you can turn something into cash.
What are the 3 categories of assets?
-Current Assets
-Fixed Assets
-Intangible Assets
What are current assets?
Current assets is where you liquidate within 12 months.
What are fixed assets?
Fixed assets is where you keep for more than 12 months.
What are intangible assets?
Intangible assets are assets that cannot be touched.
What is accounts receivable?
Accounts receivable is money that is owed to the company for products sold on credit.
What are liabilities?
-What the business owes
-Listed in order of obligation
What are two types of liabilities?
-Current liabilities
-Long-term liabilities
What are current liabilities?
Current liabilities are liabilities that are due within 12 months.
What are long-term liabilities?
Long-term liabilities are liabilities that you are paying on for more than 12 months.
What is owner's equity?
Owner's equity is the owner's net worth.
What is the equation for net worth?
Assets-Liabilities
What is a statement of cash flows?
-Tracks the inflow and outflow of cash
-Revenues may not have been collected; expenses may not have been paid
What are the three areas of a statement of cash flows?
-Operating
-Investing
-Financing
What is compounding?
Compounding is you're paying interest on your interest.
What are two ways to compare financial statements?
-Historical analysis
-Financial ratios
What is historical analysis?
Historical analysis is the same as "trend analysis"; what is the trend in profit - "year to year" or "month to month
What are financial ratios?
-Profitability
-Liquidity
-Activity
-Leverage
What are profitability ratios?
-Earnings per share(net income/common shares outstanding)
-Return on sales-how much of our sales are we retaining in profit(net income/net sales)
-Return on equity(net income/owners equity)
What are liquidity ratios?
-Current ratio (CA/CL)
-Quick ratio(CA-Inventory)/CL
What are activity ratios?
-Accounts receivable (A/R) Turnover-how many times in a 12 month period you have extended credit and collected what is owed to you
-Inventory Turnover-number of time you are completely selling out yohr inventory and completely replenishing it
What are leverage ratios?
-Debt-to-owners equity-higher the number of this ratio the more the firm is using debt to finance the lower the number they're using owners equity
What is consignment?
Consignment is "I'll pay you after I've sold the product".
What are operations?
Operations are day to day running of the business.
What are personal finance fundamentals?
-Income
-Expenses
-Short-term saving
-Long-term investing
-Security
What is income?
-You need to make money
-Active income vs. passive income
-Saving spree
-Windfalls
How can you keep more income?
-Minimize taxable income
-Invest 15% of your pre-tax income
What are expenses for mortgage?
Not more than 2 times your annual income.
What does it mean to live beneath your means?
Don't spend money you don't have.
What does it mean to have "bad" debt?
Bad" debt means that you don't have an asset to appreciate the value.
What is FICO?
Most commonly used credit score.
What are the categories evaluated for FICO?
-Payment method (35%)
-Outstanding balances (30%)
-Length of credit history (15%)
-New Credit (10%)
-Types of Credit (10%)
How can you build good credit?
-Get one credit card and pay it off in full, on time
-Pay bills on time and in full
-Close unused accounts
-Protect your credit!
What are short-term savings?
-Emergency fund
-Know how much you spend in every expense category
-Live beneath your means
-Automatic paycheck withdrawal/pay yourself first
-Automatic savings with raises
-Saving spree
What is long-term investing?
-Invest at least 15% of your pre-tax income
-Invest in areas you know
-Buy and hold
-Real estate
-401(k)
-Roth IRA
-Mutual funds
What is a 401(k)?
-Retirement plan offered by private-sector employers
-Pre-tax
-Withdraw after age 59 1/2
-Company matching
What is Roth IRA?
-$5,500 per year maximum contribution
-After tax contribution
-Tax free withdrawal after age 59 1/2
-Can borrow tax-free when buying first home
What are mutual funds?
-Diverse
-Professional managed
-Management fee
What are the stock market exchanges?
-NYSE (New York Stock Exchange)
-NASDAG (National Association of Securities Dealers Automated Quotations)
-Bear market vs. bull market
How can you protect yourself?
-Guard you SSN
-Use a password manager
-Don't put identifying information on social media
-Update your software