Editing Financial Accounting (section)

== <span style="color: #FFFFFF;">Understanding</span> ==
Financial accounting is understood through '''The Three Statements'''.

'''1. The Balance Sheet (The 'What')''':
This follows the '''Accounting Equation'''. Everything a company "Has" (Assets) was paid for either by "Borrowing" (Liabilities) or from the "Owners" (Equity). It must always balance.

'''2. The Income Statement (The 'Performance')''':
* '''Revenue''': What we sold.
* '''Expenses''': What it cost to run the business.
* '''Net Income''': The "Bottom Line" (Profit).

'''3. The Cash Flow Statement (The 'Reality')''':
Profit is an "opinion," but Cash is a "fact."
* A company can show a $1 million profit but have $0 in the bank because customers haven't paid their bills yet. This statement tracks the actual "Dollars" moving in and out.

'''The Matching Principle''': This is the heart of accounting logic. You must record an expense in the same period as the revenue it helped create. If you buy a machine that lasts 10 years, you don't record the whole cost in Year 1; you "Depreciate" it slowly over 10 years so you can see the "True" profit of each year.
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