Financial Reporting and Budgeting Basics

Financial Reporting

• Purpose: Provide stakeholders with financial information to make informed decisions
• Key components:
  • Balance Sheet: snapshot of company's financial position at a specific point in time
  • Income Statement: summary of revenues and expenses over a specific period
  • Cash Flow Statement: summary of inflows and outflows of cash
• Financial statements are prepared according to accounting standards (e.g. GAAP, IFRS)

Budgeting

• Purpose: Plan and manage financial resources to achieve organizational goals
• Types of budgets:
  • Operating budget: outlines projected income and expenses
  • Capital budget: outlines projected investments and expenditures
• Budgeting process:
  1. Identify goals and objectives
  2. Gather data and forecast revenues and expenses
  3. Establish budget targets
  4. Monitor and review budget performance

Auditing

• Purpose: Examine and verify the accuracy of financial statements
• Types of audits:
  • Internal audit: conducted by company's internal audit department
  • External audit: conducted by independent auditors
• Audit process:
  1. Planning and risk assessment
  2. Fieldwork: gathering evidence and testing transactions
  3. Reporting: issuing audit opinion and report

Taxation

• Purpose: Comply with tax laws and regulations to minimize tax liability
• Key concepts:
  • Tax basis: original cost of an asset
  • Depreciation: allocation of asset's cost over its useful life
  • Tax credits: reductions in tax liability
• Tax accounting methods:
  • Cash basis: recognizes income and expenses when received or paid
  • Accrual basis: recognizes income and expenses when earned or incurred

Financial Analysis

• Purpose: Interpret and analyze financial data to make informed decisions
• Key ratios and metrics:
  • Liquidity ratios: current ratio, quick ratio
  • Profitability ratios: gross margin ratio, return on equity
  • Efficiency ratios: asset turnover ratio, inventory turnover ratio
• Financial analysis techniques:
  • Horizontal analysis: compares financial data over time
  • Vertical analysis: analyzes financial data as a percentage of a base item

Financial Reporting

• Provides stakeholders with financial information to make informed decisions
• Comprises three key components: Balance Sheet, Income Statement, and Cash Flow Statement
• Balance Sheet: snapshot of company's financial position at a specific point in time
• Income Statement: summary of revenues and expenses over a specific period
• Cash Flow Statement: summary of inflows and outflows of cash
• Prepared according to accounting standards (e.g. GAAP, IFRS)

Budgeting

• Plans and manages financial resources to achieve organizational goals
• Two main types: Operating Budget and Capital Budget
• Operating Budget: outlines projected income and expenses
• Capital Budget: outlines projected investments and expenditures
• Budgeting process involves: identifying goals and objectives, gathering data, establishing budget targets, and monitoring performance

Auditing

• Examines and verifies the accuracy of financial statements
• Two types: Internal Audit and External Audit
• Internal Audit: conducted by company's internal audit department
• External Audit: conducted by independent auditors
• Audit process involves: planning, risk assessment, fieldwork, and reporting

Taxation

• Complies with tax laws and regulations to minimize tax liability
• Key concepts: Tax basis, Depreciation, and Tax credits
• Tax basis: original cost of an asset
• Depreciation: allocation of asset's cost over its useful life
• Tax credits: reductions in tax liability
• Two main tax accounting methods: Cash basis and Accrual basis
• Cash basis: recognizes income and expenses when received or paid
• Accrual basis: recognizes income and expenses when earned or incurred

Financial Analysis

• Interprets and analyzes financial data to make informed decisions
• Key ratios and metrics: Liquidity ratios, Profitability ratios, and Efficiency ratios
• Liquidity ratios: Current Ratio, Quick Ratio
• Profitability ratios: Gross Margin Ratio, Return on Equity
• Efficiency ratios: Asset Turnover Ratio, Inventory Turnover Ratio
• Two main financial analysis techniques: Horizontal Analysis and Vertical Analysis
• Horizontal Analysis: compares financial data over time
• Vertical Analysis: analyzes financial data as a percentage of a base item