Financial Accounting
(week 1)
Accounting is an information system that:
- measures business activities
- processes data into reports
- communicates results to people and organizations
Management accounting system
Generates info for internal decision makers (managers throughout organization)
It gives a detailed plan and continuous performance reports. It has no standards of
reliability.
Management vs Financial Acc
Different users = different of information needed
Main Areas of differences
● nature of report produced
● level of detail
● regulations
● reporting interval
● time orientation
● range & quality of information
Income statement, statement of stockholders equity, balance sheet and statement of
cash flows are the four basic financial statements.
Income statement
How well did the company perform during the year?
Income statement = profit & loss account
Focus on financial performance over a certain period.
Revenues = inflow of economic sources from operations
Expenses = outflow of economic sources from operations.
Balance sheet
What is the company’s financial position on December 31?
Balance sheet = statement of financial position at a certain point in time.
Assets = resources held by the business
Liabilities = claim on business assets by non-owners
Equity = claim on owner of business assets
Statement of Stockholders’ equity
How net income and dividends affect company’s financial position at December 31
Statement of Cash flows
How much cash did the company generate and spend during the year?
,The Annual report
Basic overview of the operational, financial and extraordinary performance of the
company.
It's over a specific period (normally 1 year)
Compared to previous periods (evolutions+comparisons)
Basically these are numbers and some notes, explaining these numbers
(week 2)
Balance sheet
Left hand side = Assets (economic resources)
, Right hand side = Liabilities + stockholder’s equity (sources of financing economic
resources.)
Both have to be equal to each other at all times!
Trade receivables zijn debiteuren, account receivables ook maar staan bij current
asset.
Trade payables = debt, crediteuren
Assets
An asset is a resource held by the business. You need an asset to run your
business. The business should own your asset.
Non-current assets (fixed assets): Intention of being used during multiple production
cycles rather than held for sale, expected to convert in cash >1 year, for example:
property,plant and equipment.
Current assets: cash and other assets expected to convert in cash <1 year, for
example: cash,inventory, etc.
Liabilities and equity
Liabilities: all claims, other than those of owners.
Notes (bank) ⇔ Accounts (suppliers)
- LT liabilities = Non-current liabilities (>12 months)
- ShT liabilities = Current liabilities (<12 months)
Stockholders equity: Claim of the owners on the business
Owners’ investment + accumulated sum of undistributed profits + all additional equity
investments.
Transaction analysis
1. What business activities cause changes in the balance sheet?
2. How do specific activities affect each balance?
3. How do companies keep track of balance sheet amounts?
Requirements: Faithful representation: the information should be complete, neutral
and free from error.
Assumption: going concern: states that business are assumed to continue to operate
into the foreseeable future.
Accounts records all changes in a particular assets, liability or equity during a period.
Account title
-----------------------------
Debit on the left l Credit on the right
Debit and credit are neutral terms, meaning either a decrease or increase.
Assets = liability + stockholders equity
Every transaction has 2 sides
1. Business gives something
2. Business receives something
Journal entry
Chronological record of the transactions = Journal
Three steps to book transactions
(week 1)
Accounting is an information system that:
- measures business activities
- processes data into reports
- communicates results to people and organizations
Management accounting system
Generates info for internal decision makers (managers throughout organization)
It gives a detailed plan and continuous performance reports. It has no standards of
reliability.
Management vs Financial Acc
Different users = different of information needed
Main Areas of differences
● nature of report produced
● level of detail
● regulations
● reporting interval
● time orientation
● range & quality of information
Income statement, statement of stockholders equity, balance sheet and statement of
cash flows are the four basic financial statements.
Income statement
How well did the company perform during the year?
Income statement = profit & loss account
Focus on financial performance over a certain period.
Revenues = inflow of economic sources from operations
Expenses = outflow of economic sources from operations.
Balance sheet
What is the company’s financial position on December 31?
Balance sheet = statement of financial position at a certain point in time.
Assets = resources held by the business
Liabilities = claim on business assets by non-owners
Equity = claim on owner of business assets
Statement of Stockholders’ equity
How net income and dividends affect company’s financial position at December 31
Statement of Cash flows
How much cash did the company generate and spend during the year?
,The Annual report
Basic overview of the operational, financial and extraordinary performance of the
company.
It's over a specific period (normally 1 year)
Compared to previous periods (evolutions+comparisons)
Basically these are numbers and some notes, explaining these numbers
(week 2)
Balance sheet
Left hand side = Assets (economic resources)
, Right hand side = Liabilities + stockholder’s equity (sources of financing economic
resources.)
Both have to be equal to each other at all times!
Trade receivables zijn debiteuren, account receivables ook maar staan bij current
asset.
Trade payables = debt, crediteuren
Assets
An asset is a resource held by the business. You need an asset to run your
business. The business should own your asset.
Non-current assets (fixed assets): Intention of being used during multiple production
cycles rather than held for sale, expected to convert in cash >1 year, for example:
property,plant and equipment.
Current assets: cash and other assets expected to convert in cash <1 year, for
example: cash,inventory, etc.
Liabilities and equity
Liabilities: all claims, other than those of owners.
Notes (bank) ⇔ Accounts (suppliers)
- LT liabilities = Non-current liabilities (>12 months)
- ShT liabilities = Current liabilities (<12 months)
Stockholders equity: Claim of the owners on the business
Owners’ investment + accumulated sum of undistributed profits + all additional equity
investments.
Transaction analysis
1. What business activities cause changes in the balance sheet?
2. How do specific activities affect each balance?
3. How do companies keep track of balance sheet amounts?
Requirements: Faithful representation: the information should be complete, neutral
and free from error.
Assumption: going concern: states that business are assumed to continue to operate
into the foreseeable future.
Accounts records all changes in a particular assets, liability or equity during a period.
Account title
-----------------------------
Debit on the left l Credit on the right
Debit and credit are neutral terms, meaning either a decrease or increase.
Assets = liability + stockholders equity
Every transaction has 2 sides
1. Business gives something
2. Business receives something
Journal entry
Chronological record of the transactions = Journal
Three steps to book transactions
