lecture 1: introduction Flashcards
goal of accounting
provide usefull info about busineses to various groups. It contains a historical record of all the financial transactions
why do you need accounting?
to gain understanding of the past performance and make predictions about the future
main concepts of accounting
- conservatism
- accruals
- going concern
- consistency
- separate entity
accruals
revenue is recognized when it’s earned, and expenses when assets are consumed
going concern (concept)
there is an assumption that business will continue functioning in the future
conservatism (concept)
revenue is only recognized when there is a REASONABLE certainty it will be realised
consistency (concept)
accounting method should be consistend
separate entity (concept)
transactions of the vusiness are separate from the owners
assets (BS)
probable future avonomic benefits obtained or controlled by an entity from the past transactions
non current assets
called fixed assets and used on the continuing basis
current assets
expected to be converted into cash within an operating cycle (1 year)
liabilities
future sacrifices of benefirs or providing services to other entities
stockholders equity
the residual interest in the net assets that remains agter deduction liabilities
reserves
the undistributed gains of the company
RE
retained earnings = total accumulated profits of the company that have been tetained NOT distributed to the shareholders as dividends
income statement
shows how is the financial performance of the company , explains the changes in liability, equity and assets
operating profit
income earned from core activities of the business. its independent capital structure
unusual / infrequent items
these are abnormal earnings, does not often happen
income tax expense
the expense that is out of control of the management
net income
net earnings figure after all expenses BEFORE the dividends
linkages
linkage 1:
= RE from IS flow through the RE account in the BS
linkage 2:
- cash flow from CF shows increase or decrease in cash on BS
accruals
cost and revenues are matched in the periods they are related to !! (not based on the cash)
-> accruals: expenses enjoyed, not yet paid
->prepayments; expenses paid, not yet enjoyed
6 steps of the generic framework of FSA
- articulate the purpose and contect of analysis
- collect data
- process data
- analyse and interpret the data
- communicate the conclusion
- follow up
