Accounting and Finance for non-
specialists
Made by Peerke Linnartz
Chapter summary 2,3,4,5,6,7,8
pag. 1
,Tabel of content
Chapter 2 measuring and reporting financial position...........................................................................3
Financial statements...........................................................................................................................3
assets..................................................................................................................................................3
Accounting conventions is a way to deal with financial statements...............................................4
Chapter 3 measuring and reporting financial performance....................................................................6
The recognition of expenses...............................................................................................................7
The useful life of an asset...............................................................................................................8
Depreciation methods....................................................................................................................8
Chapter 4..............................................................................................................................................10
Chapter 5 measuring and reporting cash flows....................................................................................13
Chapter 6 Analysing and interpreting financial statements..................................................................14
Profitability.......................................................................................................................................14
Resource management.....................................................................................................................16
Relationship between profitability and efficiency............................................................................16
Liquidity............................................................................................................................................17
Chapter 7..............................................................................................................................................19
The relevance and Behaviour of costs..............................................................................................19
Marginal costs..................................................................................................................................20
Chapter 8 Full Costing...........................................................................................................................21
Direct labour hour basis...................................................................................................................21
Machine hour basis method.............................................................................................................22
Activity based costing...........................................................................................................................22
Traditional costing and pricing..........................................................................................................22
The new environment: of costing and pricing..................................................................................24
pag. 2
,Chapter 2 measuring and reporting financial position
Financial statements
Statement of cashflows
Income statement (profit and loss account)
Statement of financial position (balance sheet)
Assets are business resources (things of value to the business) and include cash and inventories.
Equity is the word used in accounting to describe the investment, or stake, of the owners in the
business.
Financial accounts of the business are the tree financial statements
Explain exhibit 2.1
assets
1. An asset is a resource that have effect on the financial position of a company, but it must be
an economic resource. This source must not be available as a public good
2. The economic resource must be under the control of the business. This gives the business
the exclusive right how it is used.
3. The event or transaction, leading to control of the resource must have occurred in the past.
4. The economic resource must be capable of measurement in monetary terms.
Tangible assets are substances you can touch.
Intangible assets are things you cannot touch such as patent and computer programs
Equity represents the claim of the owners against the business, this is also referred as owner’s
capital.
Liabilities represent the claims of other parties, apart from the owner.
Assets= equity+ Liabilities
Equation
Trade payable is a claim against the business from the supplier. You bought inventory for 3000 but
not yet repaid the supplier.
Reporting period is the time that passes before a new financial statement is released.
if you determine the length of the period will involve weighing up the costs against the perceived
benefits of having that information for decision-making.
Assets = equity (amount starting period) +-profit+ liabilities
Current assets are assets for the short term, shorter than a year
They are held for sale or consumption during the business normal operating cycle.
They are expected to be sold within a year after the dare of the relevant statement of
financial position.
They are held principally held for trading
They are cash, or near cash such as easily marketable, short term investments.
pag. 3
, Non-current assets (also fixed assets) are simply assets that do not meet the definition of current
assets. They tend to be held long-term operations.
Tangible non-current assets normally consist of property, plant, and equipment.
Current liabilities
They are expected to be settled within the business normal operating cycle.
They exist principally as a result of trading
They are due to be settled within a year after the date of the relevant statement of financial
position
There is no right to defer settlement beyond a year after the date of the relevant statement
of financial position.
Noncurrent liabilities can become current liabilities when the financial value has to be repaid in the
next 12 months.
Assets- liabilities= Equity
Accounting conventions is a way to deal with financial statements.
The business entity convention is that the owner is a claim against the company itself. Legally there
is no distinction between the owner and the company itself.
The historic cost convention holds that the value of assets shown on the statement of financial
position should be based on their historic cost (acquisition cost).
Prudence convention holds that caution should be exercised when preparing financial statements.
Going concern convention, the financial statements should be prepared on the assumption that a
business will continue operations for the foreseeable feature, unless there is evidence to the
contrary. In other words, there is no intention or need, to sell off the non-current assets of the
business.
Dual aspect convention asserts that each transaction has two aspects, both of which will affect the
statement of financial position.
Goodwill cover multiple unclear subjects as a clear and separate identity, for example the quality of
products, the skills of employees and the relationship with customers.
Human resources have a small impact on the financial statement. They agree with the workforce
that they get the right that they work for the company for an agreed amount of hours/
responsibilities in return for salary.
Non-current assets have a finite or indefinite live span. Finite assets provide benefits for a limited
time. Indefinite benefits provide benefits without a foreseeable time limit.
Depreciation is the speed of use of a finite asset over a use of time. It tires by a result of a changing
market or wear and tear.
Amortisation is depreciation in the case of an intangible non-current assets.
Carrying amount is the recognition of the fact that a proportion of the historic cost of the non-
current asset has been consumed in the process of generating, or attempting to generate, benefits
for the business. It is also called net book value or written-down value.
pag. 4
specialists
Made by Peerke Linnartz
Chapter summary 2,3,4,5,6,7,8
pag. 1
,Tabel of content
Chapter 2 measuring and reporting financial position...........................................................................3
Financial statements...........................................................................................................................3
assets..................................................................................................................................................3
Accounting conventions is a way to deal with financial statements...............................................4
Chapter 3 measuring and reporting financial performance....................................................................6
The recognition of expenses...............................................................................................................7
The useful life of an asset...............................................................................................................8
Depreciation methods....................................................................................................................8
Chapter 4..............................................................................................................................................10
Chapter 5 measuring and reporting cash flows....................................................................................13
Chapter 6 Analysing and interpreting financial statements..................................................................14
Profitability.......................................................................................................................................14
Resource management.....................................................................................................................16
Relationship between profitability and efficiency............................................................................16
Liquidity............................................................................................................................................17
Chapter 7..............................................................................................................................................19
The relevance and Behaviour of costs..............................................................................................19
Marginal costs..................................................................................................................................20
Chapter 8 Full Costing...........................................................................................................................21
Direct labour hour basis...................................................................................................................21
Machine hour basis method.............................................................................................................22
Activity based costing...........................................................................................................................22
Traditional costing and pricing..........................................................................................................22
The new environment: of costing and pricing..................................................................................24
pag. 2
,Chapter 2 measuring and reporting financial position
Financial statements
Statement of cashflows
Income statement (profit and loss account)
Statement of financial position (balance sheet)
Assets are business resources (things of value to the business) and include cash and inventories.
Equity is the word used in accounting to describe the investment, or stake, of the owners in the
business.
Financial accounts of the business are the tree financial statements
Explain exhibit 2.1
assets
1. An asset is a resource that have effect on the financial position of a company, but it must be
an economic resource. This source must not be available as a public good
2. The economic resource must be under the control of the business. This gives the business
the exclusive right how it is used.
3. The event or transaction, leading to control of the resource must have occurred in the past.
4. The economic resource must be capable of measurement in monetary terms.
Tangible assets are substances you can touch.
Intangible assets are things you cannot touch such as patent and computer programs
Equity represents the claim of the owners against the business, this is also referred as owner’s
capital.
Liabilities represent the claims of other parties, apart from the owner.
Assets= equity+ Liabilities
Equation
Trade payable is a claim against the business from the supplier. You bought inventory for 3000 but
not yet repaid the supplier.
Reporting period is the time that passes before a new financial statement is released.
if you determine the length of the period will involve weighing up the costs against the perceived
benefits of having that information for decision-making.
Assets = equity (amount starting period) +-profit+ liabilities
Current assets are assets for the short term, shorter than a year
They are held for sale or consumption during the business normal operating cycle.
They are expected to be sold within a year after the dare of the relevant statement of
financial position.
They are held principally held for trading
They are cash, or near cash such as easily marketable, short term investments.
pag. 3
, Non-current assets (also fixed assets) are simply assets that do not meet the definition of current
assets. They tend to be held long-term operations.
Tangible non-current assets normally consist of property, plant, and equipment.
Current liabilities
They are expected to be settled within the business normal operating cycle.
They exist principally as a result of trading
They are due to be settled within a year after the date of the relevant statement of financial
position
There is no right to defer settlement beyond a year after the date of the relevant statement
of financial position.
Noncurrent liabilities can become current liabilities when the financial value has to be repaid in the
next 12 months.
Assets- liabilities= Equity
Accounting conventions is a way to deal with financial statements.
The business entity convention is that the owner is a claim against the company itself. Legally there
is no distinction between the owner and the company itself.
The historic cost convention holds that the value of assets shown on the statement of financial
position should be based on their historic cost (acquisition cost).
Prudence convention holds that caution should be exercised when preparing financial statements.
Going concern convention, the financial statements should be prepared on the assumption that a
business will continue operations for the foreseeable feature, unless there is evidence to the
contrary. In other words, there is no intention or need, to sell off the non-current assets of the
business.
Dual aspect convention asserts that each transaction has two aspects, both of which will affect the
statement of financial position.
Goodwill cover multiple unclear subjects as a clear and separate identity, for example the quality of
products, the skills of employees and the relationship with customers.
Human resources have a small impact on the financial statement. They agree with the workforce
that they get the right that they work for the company for an agreed amount of hours/
responsibilities in return for salary.
Non-current assets have a finite or indefinite live span. Finite assets provide benefits for a limited
time. Indefinite benefits provide benefits without a foreseeable time limit.
Depreciation is the speed of use of a finite asset over a use of time. It tires by a result of a changing
market or wear and tear.
Amortisation is depreciation in the case of an intangible non-current assets.
Carrying amount is the recognition of the fact that a proportion of the historic cost of the non-
current asset has been consumed in the process of generating, or attempting to generate, benefits
for the business. It is also called net book value or written-down value.
pag. 4
