Accounting Topic 1 (Introduction & Revision) Flashcards
financial reporting
- reporting to the outside world
- standardised (through accounting standards) & heavily regulated
4 things reporting to the outside world involves?
- financial performance -> income stment
- financial position -> balance sheet/SOFP
- generation of cash
- changes in financial position
what does standardised and heavily regulated involve
- no room for creativity
- international financial reporting standards/US GAPP or local GAAP
Standards
- International accounting standards board (IASB) = sets international financial reporting standards (IFRS)
- adopted previous International Accounting Standards (IAS)
- standard tells us how any transaction should be reported in the financial statements
2 Accounting types
- financial (performance of company, communicate info to stakeholders)
- management
Risk decisions
different risk levels - based on different needs
risk appetite affects decisions
to achieve capital gains
management accounting
- provide info = used by managers inside org (decision making and previous feedback)
- no external users = more freedom
- accounting standards help with decision making
3 benefits of management accounting not having external users?
- report as often as required in any format required
- can make estimates and assumptions
- no rules
Balance sheet/Statement of financial position
- Assets
- Liabilities
- Equity
- state affairs on particular date
- every transaction changes it
- business is continuous
- cut off transactions at end of year important to ensure profit is reported in correct period
- only transactions that are completed prior to year end should be included
types of assets
- current -> generate economic benefits over the next 12 months = cash, trade receivables, stock/inventory
- non current = property planned equipment, good will, share holdings, machinery, land , equipment
types of liabilities
- non current = mortgages, debentures, loans, pensions
- current
income statement
sales/revenue
cost of sales
expenses (trade payables, overdraft, CL)
other income
tax
interest
asset
resource = future economic benefit at BS date
sold on balance sheet/statement of financial position
expenses
resources used up at reporting date
income statement
equity
resources provided to the company by the investors
what investors own (assets - liabilities)
- capital provided and invested in company’s net assets
- owed by company to investor
- capital returned to investors when company is wound up
net assets
assets - liabilities = equity
3 resources provided to the company by the investors ?
- share capital
- share premium
- retained earnings
share capital
number of shares x nominal value of shares
share premium
excess of proceeds from share issue over nominal value of shares
retained earnings
accumulated earnings since existence
- profit earned & retained within & reinvested
- not distributed to investors (can be in future)
2 main financial statements
- Income statement for the year ended = income and expenses, gains and losses
- statement of financial position (BS) as at - on specific day
= assets, liabilities, equity
other financial statements
- statement of cash flows for the year ended (IAS7)
- statement of changes in equity for the year ended -> contributions in equity and distributions out (dividends)
- statement of profit or loss and other comprehensive income
statement of profit or loss and other comprehensive income
- total comprehensive income (TCI)
- profit for year + other comprehensive income - can be shown with income statement or separately from income statement
- revenue to profit for the year
- profit for the year to TCI
statement of cash flows
cash is king, no cash no operations
- investors must understand where cash is generated from (operations/financing) and what used for - IAS7
- operating
- investing
-financing