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Financial Accounting Chapter 2 Homework

This article will discuss the financial accounting chapter 2 homework. This homework is important because it will help you understand the basics of financial accounting. The concepts learned in this chapter are vital to your success in future accounting courses.

Your Financial Accounting Homework Guide for Chapter 2

Contrary to popular belief, financial accounting homework isn’t as complicated as it may seem at first glance. With the right approach and advice, you can get through even the most difficult parts of this type of assignment with relative ease! If you have trouble getting started, or with certain tasks like debits, credits, and depreciation, take a look at this guide on financial accounting homework. It will help you learn all you need to know and understand in order to pass your course with flying colors!

The Income Statement

-An income statement summarizes the company’s financial activities over a specific period of time. 

-The income statement is divided into two sections: operations and non-operations. 

-Income statements are usually created monthly, quarterly, or annually, depending on the business’ needs.

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Net Income

To calculate net income, you need to subtract all the expenses from revenue. You should include any costs that relate to making profit as well as any other costs that are not related to making profit. A revenue-expense statement would look something like this: Revenue – Expenses = Net Income $100 – $50 = $50.

Other Income Statements Items

1. Sales. These are the number of goods sold by a company in a given period of time. This is often calculated as revenue and can be found on the income statement. 
2. Cost of Goods Sold (COGS). These are the costs associated with producing goods or providing services, including labor and materials, that are directly linked to production. It is listed separately from other expenses because it can vary drastically from one company to another depending on how they manufacture their products or how they provide their services. 
3. Gross Profit. Gross profit is the difference between sales and the cost of goods sold. To find this number subtract COGS from sales then divide this number by sales to find the percentage gross profit margin which tells you how profitable each sale was. 
4. Operating Income (sometimes called operating profit) – these are your total earnings before taxes minus all operating expenses except interest payments on debt, depreciation, and amortization which represent wear and tear or decay on an asset over its lifetime, bad debts which represent customers who don’t pay their bills after purchase.

Revenue

1. Determine the total revenue. 
2. Determine the cost of goods sold expense. 
3. Calculate gross margin and gross profit using the following formula: Gross margin (GM) = Revenue – Cost of Goods Sold (COGS). Gross Profit (GP) = GM – Operating Expenses. 
4. Calculate operating expenses as a percentage of revenue by dividing operating expenses by revenue and multiplying by 100%. 
5. Calculate net income before taxes by subtracting operating expenses from gross profit.

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The Balance Sheet

A company’s balance sheet is a summary of their financial situation. It tells you the company’s assets, liabilities, and equity. Assets are the things that the company owns, while liabilities are money they owe to someone else. Equity is an accounting term that means ownership of a company. Equity is also known as net worth or owner’s equity because it refers to how much an owner has invested in the business (their capital) minus what they have taken out (their withdrawals). A positive number on this line means there is more capital than withdrawals. If you have a negative number here, then there was more money taken out than put into it over the course of time that this information covers.

Assets

1. Liabilities are expenses that have not been paid yet. If a company owes money to another company, it is considered a liability on the balance sheet. If you own a house, the mortgage is an example of a liability you may have. 
2. Accounts payable is when you owe money to someone who has done work or provided materials and not yet been paid by the due date (not your credit card bill). Accounts receivable is when someone owes money to you but has not yet paid it back (like credit card bills). 
3. The terms assets and liabilities are often used interchangeably, but they refer to two different things: assets are something of monetary value that can be used in business operations while liabilities are debts or obligations that need to be repaid.

Expenses

1. What are the three types of expenses? 
2. What is an operating expense? 
3. What is a capital expense? 
4. Which type of expenses would be included in the cost of goods sold (COGS) calculation? 
5. How does depreciation affect your company’s profitability, as well as your ability to meet debt obligations? 
6. How do you account for prepaid expenses when recording them on a financial statement or tax return? 
7. When should you record an expense on your financial statement or tax return?

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Liabilities

1) What is an example of an asset? An inventory, cash, and a factory. 

2) What is the main difference between assets and liabilities? Assets are things that increase in value over time. Liabilities are things that decrease in value over time. 

3) Which of these items would be considered an asset: A, B, or C? A would be considered an asset because it increases in value over time. 

4) Which of these items would be considered a liability: A, B, or C? C would be considered a liability because it decreases in value over time.

Equity

In accounting, equity is the difference between total assets and total liabilities. Total assets are anything of value that a company owns. It includes cash, investments, property, equipment, inventory and other items. Total liabilities are anything of value that a company owes to others. The sum of the two equals equity.

The Statement Of Cash Flows

Every business needs to keep track of how much money is coming in and where it’s going. This is called a cash flow statement and it lets you know how your business is doing financially. The statement of cash flows tells you the different ways money comes into a business and what happens to it after that. It’s important to be able to read a cash flow statement because it tells you what your organization may be lacking, which will then help you make informed decisions on how best to spend your money. A lot of businesses use the statement of cash flows when trying to decide if they should reinvest their earnings back into the company or distribute them as dividends.

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FAQ

What is financial accounting?

Financial accounting is the process of recording and summarizing financial data. Accountants are responsible for preparing financial statements that report the financial status of a business or organization in a standardized format. Financial statements provide information on an organization’s assets, liabilities, and net worth. The three primary financial statements are the balance sheet, income statement, and cash flow statement.

What are the different types of financial statements?

There are three different types of financial statements: balance sheets, income statements, and cash flow statements. A balance sheet is a summary of a company’s assets (what it owns) and liabilities (what it owes) at a point in time. The income statement reflects the company’s profitability over a specific period of time. Income statements are often broken down into two categories: operating income and net income.

What are the different types of financial ratios?

Financial ratios are a way to measure your company’s performance and compare it to other companies within your industry. There are four types of financial ratios: profitability, liquidity, activity, and leverage. These ratios give you a general idea of how the company is doing financially.