Basic Financial Accounting PPT 1

7/28/2019 Basic Financial Accounting PPT 1

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Learning Goals :

Explains the functions and importance of accounting, and

identify the three basic activities involving accounting. Identify the foundations of the accounting system, including

GAAP and the role of the Financial Accounting StandardsBoard (FASB).

Outline the steps in the accounting cycle, and define double-entry bookkeeping and the accounting equation.


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Explains the functions and major components of thefour principal financial statements: the balance sheet,the income statement, the statement of owners

equity, and the statement of cash flows. Discuss how financial ratios are used to analyze a

companys financial strengths and weaknesses.

Describes the role of budgets in a business.

Outline accounting issues facing global business andthe move toward one set of worldwide accountingrules.


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Accounting is the process of measuring,interpreting, and communicating financial

information to support internal and external

business decision making (End Users )


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5

Accounting is the information system that...

measures business activities,

processes data into reports, and

communicates results to decision makers.

Accounting

The Language of Business


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Accounting is the language of business.

Finance uses accounting information together with

other information to make decisions that affect the

market value of the firm

There are three primary decision areas that are of

concern.


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Three decision areas of Finance

Investment decisions - What assets should the

company hold? This determines the left-hand side of

the balance sheet. Financing decisions - How should the company pay

for the investments it makes? This determines the

right-hand side of the balance sheet.

Dividend decisions - What should be done with the

profits of the business?


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Users of accounting information

Owners

Managers

Investor

Creditors

and

Financial

Institution

Employees

Government

Customers


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Objectives of accounting :

1) Systematic recording and measuring of the business

transactions

2)Calculation of profit or loss

3) Depiction of financial position

4)To make information available to various group andusers at a particular time.

5) To know the solvency position


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Important terms in accounting

Debtors

Creditors

Assets

Liabilities

Income

Expenses

Account


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Organizations that Influence Accounting

American Institute of Certified Public Accountants

(AICPA)

Financial Accounting Standards Board (FASB)

Securities and Exchange Commission (SEC)

Internal Revenue Service (IRS)

Hospitality Financial and Technology Professionals

(HFTP)


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Methods of Accounting

a) Cash Basis Accounting Method

Recognizes accounting transaction at point of cash

inflow or outflowb) Accrual Basis Accounting Method

Recognizes all revenues earned and records allexpenses incurred for the period

Matches expenses with revenues

Requires adjusting entries


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Sub fields of accounting

Financial

accounting

Cost

accounting

Management

accounting


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Financial Accounting Statutory

External focus

GAAP Audit

End products: BS, IS,

CFS

Cost and ManagementAccounting

Not statutory

Internal focus

Non-GAAP No audit

End product: dependson the managerial

requirement


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ACCOUNTING CYCLE

1. Analyze transaction

2. Journalize original entries

3. Post journal entries to

ledger

4. Identify, journalize and post

adjusting entries

6. Prepare financial statements

5. Journalize and post closing

entries


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Bookkeeping Vs. Accounting

Bookkeeping1) Recording of transaction

2) Base for accounting

3) Decision cannot be taken

4) No sub-field

5) Financial position cannotbe ascertained

Accounting1) Summarizing transactions.

2) Language of the business.

3) Decisions can be taken

4) Several sub-fields

5)Financial position canascertained


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Accounting as an Aid to

Decision Making

Fundamental relationships in the decision-

making process:

Event

Accountants

analysis &

recording

Financial

Statements

Users


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Accounting Equation

Assets - anything of value owned or leased by a business.

Liability - claim against a firms assets by a creditor.

Owners equity - all claims of the proprietor, partners, or

stockholders against the assets of a firm, equal to the excess ofassets over liabilities.

Basic accounting equation - relationship that states that assetsequal liabilities plus owners equity.

Assets = Liabilities + Owners equity

Double-entry bookkeeping - process by which accountingtransactions are entered; each individual transaction alwayshas an offsetting transaction

Accounting equation
http://localhost/var/www/apps/conversion/tmp/scratch_6/FA/Accounting%20Equation.dochttp://localhost/var/www/apps/conversion/tmp/scratch_6/FA/Accounting%20Equation.doc


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Accounting Equation

ASSETS = EQUITIES

ASSETS = LIABILITIES + OWNERS' EQUITY

Accounting Equation
http://localhost/var/www/apps/conversion/tmp/scratch_6/FA/Accounting%20Equation.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/FA/Accounting%20Equation.xlsx


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Major Financial Statements

Balance Sheet

Outlines the fundamental accounting equation

Income Statement

Also called profit & loss statement

Shows results of operations for a period

Statement of Cash Flows (SCF)

Shows cash inflows and outflows for a period


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What about Stakeholders?

Stakeholders include groups that have direct economic links to

the firm.

Stakeholders include not only owners, but also employees,

customers, suppliers, and creditors.

Maintaining positive stakeholder relationships helps maximizelong-term benefits to shareholders.


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Economic Value AddedEVA

EVA measures whether an investment contributes to

shareholder wealth.

EVA is the surplus left after providing a charge on the capital

employed in the business simplest calculation

EVA = PAT COST OF EQUITY x EQUITY

While popular, EVA is essentially derived from the concept of

net present value.


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Corporate Organization Chart


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Annual Report :

Annual report - a document prepared by management

and distributed to current and potential investors to

inform them about the companys past performanceand future prospects.

The annual report is one of the most common sourcesof financial information used by investors and

managers


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The annual report usually includes:

A letter from corporate management

A discussion and analysis of recent economic eventsby management

Footnotes that explain many elements of the financialstatements in more detail

The report of the independent auditors

A statement of managements responsibility forpreparation of the financial statements and othercorporate information

Basic Financial Accounting PPT 1

Documents

Transcript of Basic Financial Accounting PPT 1