ADM 1300 Lecture 17: ADM1300- Accounting (For Exam)
25 Feb 2016
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Accounting: using an information system for complete processing of financial information. 2 areas of accounting: financial accounting: serves external users; related to activities of firm as a whole, managerial accounting: serves internal users; helps in planning, forward looking rather than historical. Double-entry accounting: writing every business transaction in 2 places; balance sheet is balance". Ratio analysis: logical relationship exists btw/ certain pairs of items on financial statements. Purpose of ratios: industry standards observe industry standard for ratios looked at, historical standards observe performance for ratios looked at (ex. last 5 years, company ratios: look at ratios of specific companies & compare them. Liquidity ratios measures ability to pay off current debts: higher ratio is better, current ratio: measures ability to cover current obligations. Good ratio = 2:1 (current assets double of current liabilities: quick ratio: idea that it"s harder to get cash for inventory. Total assets: operating ratios (activity ratios) deals w/ stability of firm.
