Finance for non finance professionals
30
Finance for non-finance professionals NITI Finance unit Prepared & Presented by: Islam Ragab, CMA, CIA
-
Upload
islam-ragab-cma-cia -
Category
Documents
-
view
96 -
download
1
Transcript of Finance for non finance professionals
Finance for non-finance professionalsNITI Finance unit
Prepared & Presented by: Islam Ragab, CMA, CIA
Who need to attend this course.• All professionals ( Doctors, Engineers, etc.)
• All managers and executives with non-financial background.
Outlines.• Why we need to understand Finance.• What’s the meaning of Accounting. • Meaning of assets, Liabilities, Revenues,
Expenses & owner’s equity.• Examples of Accounting recording (case study).• External Auditor report (Financial statements).• Accounting information users.• Types of business entities.• Financial Management main three decisions.
Why is Financial Education Necessary?
• Climbing up the corporate ladder requires solid financial knowledge – even for non-financial managers.
• Financial education gives managers the tools to make better decisions: when choosing between projects, planning a budget, making large purchases and so on.
What’s the meaning of Accounting?
• Accounting : Is recording Historical events that contain monetary values Then summarizing and reporting them to provide useful information to Accounting information’s users.
What’s the meaning of the following?
• Asset.• Liability.• Owner’s Equity.
* All of the above are Balance sheet items.
What’s the meaning of the following?
• Revenues.• Expense.
* These tow items are Income statement items.
EconomicResources
Claims toEconomicResources
The Accounting Equation
Assets = Liabilities + Owner’s Equity
Accounting TransactionsExamples of events to be recorded :
1- Islam Ragab and Mohamed established ABC Retail company with a capital SAR1 MM shared equally between them on 01 Jan 2017.
2-ABC company purchased goods from XYZ company by SAR50,000 on account on 03 Jan 2017.
3- ABC paid SAR20,000 to XYZ on 10 Jan 2017.
4- ABC made credit sales to Successful Comp. by SAR80,000 on 15 Jan 2017.
5- ABC collected SAR60,000 from Successful comp. on 21 Feb 2017.
Double-Entry Accounting
“ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. Scale or Balance
ReceiveDEBIT
GiveCREDIT
Left Side Right Side
Accounting TransactionsExamples of events to be recorded :
1- Islam Ragab and Mohamed established ABC Retail company with a capital SAR1 MM shared equally between them on 01 Jan 2017.
2-ABC company purchased goods from XYZ company by SAR50,000 on account on 03 Jan 2017.
3- ABC paid SAR20,000 to XYZ on 10 Jan 2017.
4- ABC made credit sales to Successful Comp. by SAR80,000 on 05 Jan 2017.
5- ABC collected SAR60,000 from Successful comp. on 21 Feb 2017.
Double Entry SystemDebit Credit
Cash 1,000,000
Capital Islam 500,000
Capital Mohamed 500,000
Total 1,000,000 1,000,000
Debit Credit
Inventory 50,000
Payable to XYZ 50,000
Total 50,000 50,000
Debit Credit
Payable to XYZ 20,000
Cash 20,000
Total 20,000
20,000
Debit Credit
Cost of sales 50,000 Inventory 50,000
Total 50,000 50,000
Debit Credit
A/R Successful 80,000
sales revenue 80,000
Total 80,000
80,000
Debit CreditCash 60,000 A/R Successful 60,000
Total 60,000 60,000
Cash
AccountsPayable
Inventory
Ledger
Cash transactions
liability accounts
Inventory or purchases
Subsidiary Books
Balance sheet (Statement of Financial position)
• A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.
2017 Journal entriesDebit Credit
Cash 1,000,000
Capital Islam 500,000
Capital Mohamed 500,000
Total 1,000,000 1,000,000
Debit Credit
Inventory 50,000
Payable to XYZ 50,000
Total 50,000 50,000
Debit Credit
Payable to XYZ 20,000
Cash 20,000
Total 20,000
20,000
Debit Credit
Cost of sales 50,000 Inventory 50,000
Total 50,000 50,000
Debit Credit
A/R Successful 80,000
sales revenue 80,000
Total 80,000
80,000
Debit CreditCash 60,000 A/R Successful 60,000
Total 60,000 60,000
ABC CompanyStatement of financial position ( Balance Sheet)As of 31 of December 2017• Assets• Current AssetsCash 1,040,000A/R 20,000Inventory 0• Non-current assetsLand 0Building 0Total Assets 1,060,000 • Liabilities and Owner’s Equity• LiabilitiesPayable to XYZ 30,000
• Owner’s EquityCapital 1,000,000Income of the year 30,000
Total Liabilities and Owner’s Equity 1,060,000
What is an Income Statement?
• An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period.
ABC CompanyStatement of Profit or loss As of 31 of December 2017
• Revenues.Sales 80,000• Expenses Cost of sales (50,000)• Net income 30,000
2017 Journal entriesDebit Credit
Cash 1,000,000
Capital Islam 500,000
Capital Mohamed 500,000
Total 1,000,000 1,000,000
Debit Credit
Inventory 50,000
Payable to XYZ 50,000
Total 50,000 50,000
Debit Credit
Payable to XYZ 20,000
Cash 20,000
Total 20,000
20,000
Debit Credit
Cost of sales 50,000 Inventory 50,000
Total 50,000 50,000
Debit Credit
A/R Successful 80,000
sales revenue 80,000
Total 80,000
80,000
Debit CreditCash 60,000 A/R Successful 60,000
Total 60,000 60,000
• Cash from operating activities Cash inflows 60,000Cash outflows (20,000)
Net cash flows from operations 40,000• Cash flows from investing activities
0• Cash flows from financing Activities
1,000,000 • Net increase in cash and cash equivalents
1,040,000• Cash and cash equivalents at the beginning of the year/period
0
• Cash and cash equivalents at the end of the year/period 1,040,000
ABC CompanyStatement of cash flowsFor the year ended December 31, 2017
EXTERNAL USERS
Financial Accounting• investors• creditors• regulators• customers• competitors
• owners• managers• employee
s
INTERNAL USERS
Financial Accounting
Users of Accounting Information
Types of business entities
• Sole proprietorship.• Partnership.• Corporations.
- Holding ( Consolidated and stand alone FS ), subsidiaries ( stand alone FS only).
Difference between Holding & subsidiary companies.
What is a Sole Proprietorship?• A sole proprietorship, also known as a sole
trader or a proprietorship, is an unincorporated business with a single owner.
• Easy to establish• Owned and operated by one individual• Owner faces unlimited liability with respect
to his/her business
What is a Partnership?• Involves two or more owners
• Details of each partners responsibilities are outlined in a partnership agreementTwo Types of Partnerships• General Partnerships- partners face unlimited
liability- partners are involved in
the day-to-day operation of the business
- partners are jointly liable for all the obligations of the partnership
• Limited Partnerships- must have at least one
general partner involved in business
- limited partners cannot be involved in business operations
- liability is limited to the amount invested in the partnership
What is a Corporation?• Corporations are owned by their stockholders
(shareholders) who share in profits and losses generated through the firm's operations, a firm and its owners are limited in their liability to the creditors and other obligors only up to the resources of the firm, unless the owners give personal-guaranties.
• Recognized as separate entities• Transfer of ownership is relatively easy• Shareholders exert influence over the corporation by
electing board of directors
Financial Management
Financial Management Mainly concerned with three major decisions as functions of finance. These are :
The investment decisionThe financing decisionThe dividend decision
The Investment Decision
The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad categories
Long term assets (which yield return over a period of time in future.) –Capital Budgeting.Short term or current assets (convertible into cash usually within one year.) –Working Capital Management.
The Financing Decision
• These decisions seek Optimal Capital Structure.
a capital structure with a reasonable proportion of debt and equity capital.
The Dividend Decision
The dividend should be analyzed in relation to the financing decision of the firm. Two alternatives are available in dealing with the profits of a firm:
They can be distributed to the shareholders in the form of the dividends
They can be retained in the business itself ( Retained earnings).
Questions?
Thank you
