Week 1: Introduction/Revision of Basic Accounting
Concepts
Revision of the fundamental accounting concepts:
Part 1:
1.Who is interested in accounting information?
Management, investors,
creditors,employees,regualtors,suppliers,customers,anlyst and for the
public
2. In general, how often do companies need to prepare financial
statements?
Typically, annually, quarterly for the public companies, and sometimes
monthly for internal purposes.
3. Can you name the financial statements?
Income statement, balance sheet, cash flow statement, and statement of
changes in equity
4. What does each financial statement measure?
Income statement-profitability over time.
Balance sheet: financial position at a specific time.
Cash flow statement: cash inflows and outflows over time.
Statement of Changes in Equity: Changes in Shareholders equity
5. How do the 3 main financial statements relate to each other?
Net income from the income statement flows into the cash flow
statement. Equity on the balance sheet. Ending Cash from the cash flow
statement is on the balance sheet.
Main financial statement and the Accounting Period:
Balance Sheet: Provides a snapshot of the financial position of the
company on the last day of the accounting period.
Income Statement: It’s like a video, shows the revenue and expenses
flows during the entire accounting period.
Cash Flow statement: It’s also like a video, shows the inflows of cash in
and out of the business during the entire accounting period.
The link between the 3 financial statements:
Part 2:
1.Why does the balance sheet balance?
Assets=Liabilities +Equity, This equation reflects that everything the
company owns is financed either through debt(liabilities) or through
, ownership contributions(equity).It ensures that the company`s resources
and the sources of financing are always equal.
2.Do you recall the balance sheet equation? simple terms,define its main
components.
Assets=Liabilities +Equity
The balance sheet equation:
Assets=Claims
Assets=Liabilities +Equity
Assets:
-Owned or controlled by the business because of past transaction
-Can be faithfully/reliably measured in monetary terms
-It is expected to have future economic benefits.
Which of the following items meet the asset recognition criteria and can
be classified as assets on the balance sheet?
i. The finance director’s leased company car
ii. Last year’s designer handbags (inventory), which are left as inventory
after the end of season sale
iii. The expertise of the research and development (R&D) team of the
business
iv. The reputation of the business
Simple balance sheet format:
Further classifications of Assets is
If >12 months: Non-current asset
If <12 months: Current Asset
-Tangible
The-Intangible
Balance Sheet Equation-Claims
Assets=Claims
There are essentially two types of claims
against a business:
-Equity
-Liabilities
Concepts
Revision of the fundamental accounting concepts:
Part 1:
1.Who is interested in accounting information?
Management, investors,
creditors,employees,regualtors,suppliers,customers,anlyst and for the
public
2. In general, how often do companies need to prepare financial
statements?
Typically, annually, quarterly for the public companies, and sometimes
monthly for internal purposes.
3. Can you name the financial statements?
Income statement, balance sheet, cash flow statement, and statement of
changes in equity
4. What does each financial statement measure?
Income statement-profitability over time.
Balance sheet: financial position at a specific time.
Cash flow statement: cash inflows and outflows over time.
Statement of Changes in Equity: Changes in Shareholders equity
5. How do the 3 main financial statements relate to each other?
Net income from the income statement flows into the cash flow
statement. Equity on the balance sheet. Ending Cash from the cash flow
statement is on the balance sheet.
Main financial statement and the Accounting Period:
Balance Sheet: Provides a snapshot of the financial position of the
company on the last day of the accounting period.
Income Statement: It’s like a video, shows the revenue and expenses
flows during the entire accounting period.
Cash Flow statement: It’s also like a video, shows the inflows of cash in
and out of the business during the entire accounting period.
The link between the 3 financial statements:
Part 2:
1.Why does the balance sheet balance?
Assets=Liabilities +Equity, This equation reflects that everything the
company owns is financed either through debt(liabilities) or through
, ownership contributions(equity).It ensures that the company`s resources
and the sources of financing are always equal.
2.Do you recall the balance sheet equation? simple terms,define its main
components.
Assets=Liabilities +Equity
The balance sheet equation:
Assets=Claims
Assets=Liabilities +Equity
Assets:
-Owned or controlled by the business because of past transaction
-Can be faithfully/reliably measured in monetary terms
-It is expected to have future economic benefits.
Which of the following items meet the asset recognition criteria and can
be classified as assets on the balance sheet?
i. The finance director’s leased company car
ii. Last year’s designer handbags (inventory), which are left as inventory
after the end of season sale
iii. The expertise of the research and development (R&D) team of the
business
iv. The reputation of the business
Simple balance sheet format:
Further classifications of Assets is
If >12 months: Non-current asset
If <12 months: Current Asset
-Tangible
The-Intangible
Balance Sheet Equation-Claims
Assets=Claims
There are essentially two types of claims
against a business:
-Equity
-Liabilities
