वित्तीय लेखांकन का परिचय

• Accountancy is the process of recording, classifying, summarizing, and interpreting financial transactions to provide information for decision-making.
• Financial accounting is a specific branch of accountancy focused on preparing financial statements for external users like investors, creditors, and regulators.
• Financial accounting adheres to established standards and principles to ensure comparability and consistency across different companies' financial reports.

Key Financial Statements

• The balance sheet presents a company's assets, liabilities, and equity at a specific point in time, reflecting the accounting equation: Assets = Liabilities + Equity.
• Assets are a company's resources (e.g., cash, accounts receivable, inventory, equipment).
• Liabilities are a company's obligations to others (e.g., accounts payable, salaries payable, loans).
• Equity represents the owners' stake in the company (e.g., common stock, retained earnings).
• The income statement reports a company's financial performance over a period of time, showing revenues, expenses, and net income (or net loss).
• Revenues are inflows from delivering goods or services.
• Expenses are outflows incurred in generating revenue.
• Net income is the difference between revenues and expenses (Revenues - Expenses = Net Income).
• The statement of cash flows tracks the movement of cash both into and out of a company during a period, categorized into operating, investing, and financing activities.
• Operating activities relate to the company's core business operations (e.g., cash receipts from sales, cash payments to suppliers).
• Investing activities involve the purchase and sale of long-term assets (e.g., property, plant, and equipment).
• Financing activities concern how the company is funded (e.g., borrowing money, issuing stock, paying dividends).
• The statement of retained earnings shows the changes in a company's retained earnings balance during a period, reflecting net income and dividend distributions.
• Retained earnings represent the accumulated profits of the company that have not been distributed to shareholders.

Generally Accepted Accounting Principles (GAAP)

• GAAP are a common set of accounting rules, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
• GAAP aims to make financial statements relevant, reliable, and comparable.
• Key principles include:
• Historical Cost Principle: Assets are recorded at their original cost.
• Revenue Recognition Principle: Revenue is recognized when earned and realized (or realizable).
• Matching Principle: Expenses are matched with the revenues they helped generate.
• Full Disclosure Principle: Companies must disclose all relevant information that could affect users' decisions.
• The Securities and Exchange Commission (SEC) has the legal authority to establish accounting standards.
• The SEC has largely delegated the standard-setting authority to the FASB.

The Accounting Equation

• The foundation of double-entry bookkeeping, expressing the relationship between assets, liabilities, and equity.
• It ensures that the balance sheet always remains in balance.
• Expanded accounting equation: Assets = Liabilities + Equity + (Revenues - Expenses - Dividends).

Debits and Credits

• Debits and credits are used to record changes in the accounting equation.
• Debits increase asset, expense, and dividend accounts, while decreasing liability, equity, and revenue accounts.
• Credits increase liability, equity, and revenue accounts, while decreasing asset, expense, and dividend accounts.
• The total debits must always equal the total credits in every transaction to maintain the balance of the accounting equation.

The Accounting Cycle

• The accounting cycle is a series of steps companies use to record, classify, and summarize accounting data to produce financial statements.
• Steps in the accounting cycle:
• Identifying and analyzing transactions.
• Journalizing transactions in the general journal.
• Posting journal entries to the general ledger.
• Preparing an unadjusted trial balance.
• Making adjusting entries.
• Preparing an adjusted trial balance.
• Preparing the financial statements.
• Closing the temporary accounts.
• Preparing a post-closing trial balance.

Adjusting Entries

• Adjusting entries are made at the end of an accounting period to update accounts and ensure that the financial statements are accurate.
• Common types of adjusting entries:
• Accrued revenues: Revenues earned but not yet received in cash.
• Accrued expenses: Expenses incurred but not yet paid in cash.
• Deferred revenues (Unearned revenues): Cash received before revenue is earned.
• Deferred expenses (Prepaid expenses): Cash paid before expense is incurred.
• Depreciation: Allocating the cost of a long-term asset over its useful life.

Financial Statement Analysis

• Involves using financial statements to evaluate a company's performance and financial health.
• Common techniques include:
• Ratio analysis: Calculating and interpreting financial ratios (e.g., profitability ratios, liquidity ratios, solvency ratios).
• Trend analysis: Examining changes in financial data over time.
• Comparative analysis: Comparing a company's financial data to industry averages or competitors.

Cost Accounting

• Focuses on measuring, analyzing, and reporting costs associated with production and operations.
• Important for internal decision-making, such as pricing, product mix, and cost control.
• Cost accounting concepts:
• Direct costs: Costs that can be directly traced to a product or service (e.g., direct materials, direct labor).
• Indirect costs: Costs that cannot be easily traced to a product or service (e.g., overhead costs).
• Product costs: Costs associated with producing goods (e.g., direct materials, direct labor, manufacturing overhead).
• Period costs: Costs not directly related to production (e.g., selling, general, and administrative expenses).

Internal Controls

• Policies and procedures designed to safeguard assets, ensure the accuracy of financial records, and promote operational efficiency.
• Key components of internal control:
• Control environment: The overall attitude and awareness of management regarding internal control.
• Risk assessment: Identifying and analyzing potential risks to the organization.
• Control activities: Policies and procedures that help mitigate risks.
• Information and communication: Systems for capturing and communicating information.
• Monitoring: Assessing the effectiveness of internal control over time.

Ethical Considerations

• Accountants have a responsibility to act with integrity, objectivity, and professional competence.
• Ethical codes of conduct provide guidance on ethical behavior in accounting.
• Ethical dilemmas may arise when conflicts of interest exist or when there are pressures to manipulate financial information

International Financial Reporting Standards (IFRS)

• A set of accounting standards issued by the International Accounting Standards Board (IASB).
• IFRS are used in many countries around the world.
• Differences exist between IFRS and GAAP, although efforts are underway to converge the two sets of standards.