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Sunday, June 3, 2012

Balance sheet or statement of financial position....

In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, abusiness partnership, a corporation or other business organization, such as an LLC or an LLPAssetsliabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.[3]
Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing."
A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they cannot, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.

Accounting Education a not-for-profit organization to teach accounting and finance subjects

From Jan. 2008, Prof. Vinod Kumar started also his educational mission in accounting field and he had launched Accounting Education  a not-for-profit organization. He writes about accounting and finance subjects, current academic and educational topics, career and accounting softwares that help students, teachers, accountants and finance managers. 

Accounting Education is a not-for-profit organization with the mission of providing a world class education, for free. We are most known for our library of over 2000 educational contents and videos.

Prof. Vinod Kumar has received the post graduate degree in commerce from H.P. University in 2004. He started his career in 2001 as a part-time teacher in S.O.S. Children Village of India. He had taught commerce classes for 10 years.

Tuesday, May 22, 2012

Solvency II: Basics of Solvency II (Part 1)

Solvency II: Basics of Solvency II (Part 1): To understand better about Solvency II, lets start with solvency concept. What is Solvency Margin? Solvency Margin: In a simple word to desc...

Monday, May 21, 2012

Cash flow statement

Cash flow statement

In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement,[1] is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.
People and groups interested in cash flow statements include:
  • Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
  • Potential lenders or creditors, who want a clear picture of a company's ability to repay
  • Potential investors, who need to judge whether the company is financially sound
  • Potential employees or contractors, who need to know whether the company will be able to afford compensation
  • Shareholders of the business.


Statement of Cash Flow - Simple Example
for the period 01/01/2006 to 12/31/2006
Cash flow from operations$4,000
Cash flow from investing($1,000)
Cash flow from financing($2,000)
Net cash flow$1,000
Parentheses indicate negative values
The cash flow statement was previously known as the flow of Cash statement.[2] The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few.[3] The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes.
The cash flow statement is intended to[4]
  1. provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
  2. provide additional information for evaluating changes in assets, liabilities and equity
  3. improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
  4. indicate the amount, timing and probability of future cash flows
The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.[5]


Friday, May 18, 2012

The Annual and Quarterly Statements for Health Insurance Accounting

The Annual and Quarterly Statements are the primary financial reports required by
state insurance departments and similar governmental jurisdictions (such as the
District of Columbia, the Virgin Islands, and Puerto Rico) for health companies. The
format of the Statement and the rules to be followed in preparing it are established by
the NAIC. The Annual Statement, often called “Statement” or “Blank,” consists of
the following:
• Title page and jurat
• Balance sheet (assets, liabilities, and surplus)
• Statement of income
• Statement of capital and surplus
• Statement of cash flow
• Underwriting and investment exhibits
• Various exhibits of data which support other parts of the statement
• Notes to financial statements
• Summary investment schedule
• General interrogatories
• Five year historical data
• Numerous schedules, supplemental schedules and exhibits
The Statement also includes a report of premiums, enrollment, and utilization to
policyholders for each state in which the Statement is filed. An illustrative 2007
Annual Statement appears as Appendix A.
Although similar in format to the Annual Statement, the Quarterly Statement omits
many of the exhibits and schedules. It presents information on a year-to-date basis.

Friday, May 4, 2012

Generally Accepted Accounting Principles (GAAP)

Generally Accepted Accounting Principles (GAAP) refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing, and in the preparation of financial statements.

Microsoft Dynamics NAV

Microsoft Dynamics NAV

Microsoft Dynamics NAV is a business management solution that helps small and mid-sized organizations streamline their highly specialized business processes, rapidly adapting to the unique way they do business.