Accounting Fundamentals – Visual Study Guide

1. Business Decisions & Financial Accounting

This diagram introduces financial accounting and how it helps businesses make decisions. It explains different organizational forms (sole proprietorship, partnership, corporation) and the basic accounting equation:

Assets = Liabilities + Equity

It also shows accounting standards (like GAAP) and the main financial reports used by companies.

2. Balance Sheet

The balance sheet shows a company’s financial position at a specific time.
It has three main parts:

• Assets: What the company owns (cash, accounts receivable, buildings, land, equipment).

• Liabilities: What the company owes (notes payable, salaries payable, accounts payable).

• Stockholders’ Equity: Owners’ claim in the business (retained earnings and common stock).

3. Income Statement

The income statement shows a company’s financial performance over a period of time.

It includes:

• Revenue: Money earned from sales or services.

• Expenses: Costs like advertising, salaries, utilities.

The result is Net Income, calculated as:

Net Income = Revenues − Expenses

4. Adjustments & Closing Process

This diagram explains the accounting cycle adjustments and closing process.

Key ideas include:

• Accruals and deferrals used to record revenues and expenses in the correct period.

• Adjusted trial balance used to prepare financial statements.

• The closing process, which closes temporary accounts (revenues, expenses, dividends) to retained earnings and prepares the next accounting period.