Basic Accounting PDF

FINANCIAL ANALYSIS AND REPORTING BASIC ACCOUNTING  FINANCIAL ANALYSIS AND REPORTING LEARNING OBJECTIVES 01 DEFINITION OF ACCOUNTING 02 PURPOSE AND PHASES OF ACCOUNTING 03 ELEMENTS OF FINANCIAL STATEMENTS 04 TYPICAL ACCOUNT...

FINANCIAL ANALYSIS AND REPORTING BASIC ACCOUNTING  FINANCIAL ANALYSIS AND REPORTING LEARNING OBJECTIVES 01 DEFINITION OF ACCOUNTING 02 PURPOSE AND PHASES OF ACCOUNTING 03 ELEMENTS OF FINANCIAL STATEMENTS 04 TYPICAL ACCOUNT TITLES USED – BALANCE SHEET 05 14STATEMENT TYPICAL ACCOUNT TITLES USED – INCOME 15 16  FINANCIAL ANALYSIS AND REPORTING ACCOUN TING - is a service activity - It function is to provide quantitative information, primarily financial in nature about economic entities that is intended to be useful in making economic decisions - is an information system that measures, processes and communicates financial information about an economic entity - is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information  FINANCIAL ANALYSIS AND REPORTING ACCOUN TING ‘- is often referred to as the language of the business, because it is fundamental to the communication of financial information “ ACCOUNTING as science and art As a social science, accounting is a body of knowledge which has been systematically gathered, classified and organized As a practical art, accounting requires the use of creative skills and judgement  FINANCIAL ANALYSIS AND REPORTING Types of information provided by accounting 1. Quantitative information - Information expressed in numbers, quantities or units 2. Qualitative information - Information expressed in words or descriptive form. Quantitative information is found in the notes to fi nancial statements as well as on the face of the other components of fi nancial statements 3. financial information - Information expressed in money. It is also quantitative information because monetary amounts are normally expressed in numbers  FINANCIAL ANALYSIS AND REPORTING Purpose of  accounting The accounting function is part of broader business system and does not operate it in isolation.  It handles financial operations of the business but also provides information and advice to other departments.  Business transactions are the economic activities of a business.  Recording these historical events is a significant function of accounting  Accounts are produced to aid management in planning, control and decision-making and to comply with regulations  PHASES OF FINANCIAL ANALYSIS AND REPORTING ACCOUNTING 1. Recording 2. classifying 3. 4. summarizing interpreting  This is  Means the  After each  These are the technically called sorting of accounting accountant’s bookkeeping. business period, data interpretation on transactions to recorded are the Financial  A systematic and their specific summarized statement. chronological accounts. through financial recording of statements.  This is called business  This is the phase Analysis Report transactions, where items are  These Financial that must be observing sorted and statements are: submitted therein the grouped. 1) Income together with the fundamental Statement Financial reports. principles of  Similar items are 2) Balance Sheet accounting.. being classified 3) Statement of  FINANCIAL ANALYSIS AND REPORTING Users and their information needs INVESTORS They need information to help them determine whether they should buy, hold or sell employees They are interested in information about the stability and profitability of their employers lenders They are interested in information that enables them to determine whether their loans and the related interest will  FINANCIAL ANALYSIS AND REPORTING Users and their information needs Suppliers and other trade creditors They are interested in information that enables them to determine whether amounts owing to them will be paid when due customers Have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with or are dependent on, the enterprise Government and their agencies They are interested in the allocation of resources and therefore, the activities of the enterprises  FINANCIAL ANALYSIS AND REPORTING Users and their information public needs - Enterprises aff ect members of the public in a variety of ways. - Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the enterprise and the range of its activities.  FINANCIAL ANALYSIS AND REPORTING FINANCIAL STATEMENTS Financial statements are written records that convey the financial activities of a company. Financial statements are often audited by government agencies and accountants to ensure accuracy and for tax, financing, or investing purposes. The financial statements are used by investors, market analysts, and creditors to evaluate a company's financial health and earnings potential. The three major financial statement reports are the balance sheet, income statement, and statement of cash fl ows (Investopedia).  FINANCIAL ANALYSIS AND REPORTING Elements of financial  The elements directlystatements related to the measurement of financial position in the balance sheet are ASSETS, LIABILITIES and EQUITY ACCOUNTING EQUATION ASSETS = LIABILITIES + EQUITY ASSET – is a present economic resource controlled by the entity as a result of past events. LIABILITY – is a present obligation of the entity to transfer an economic resource as a result of past events. EQUITY – is the residual interest in the assets of the enterprise after deducting all its liabilities  FINANCIAL ANALYSIS AND REPORTING Balance sheet Snowball Corporation’s Balance Sheet As of December 31, 2023 ASSETS Current Assets Cash XX Marketable XX Securities Accounts XX Receivable Inventories XX Total Current Assets XX Non-Current Assets PPE XX Furniture and XX fixtures  FINANCIAL ANALYSIS AND REPORTING Balance sheet Snowball Corporation’s Balance Sheet As of December 31, 2023 LIABILITIES Current Liabilities Accounts Payable XX Notes Payable XX Total Current XX Liabilities Non-Current Liabilities Bonds Payable XX Mortgage Payable XX Total Non-Current XX Liabilities TOTAL LIABILITIES XX  FINANCIAL ANALYSIS AND REPORTING Balance sheet Snowball Corporation’s Balance Sheet As of December 31, 2023 SHAREHOLDER’S EQUITY Preferred Stock XX Common Stock XX Paid in capital in excess XX of par on common stock Retained Earnings XX Total Stockholder’s XX Equity TOTAL LIABILITIES AND STOCKHOLDER’S XX EQUITY  FINANCIAL ANALYSIS AND REPORTING Elements of financial statements  The elements directly related to the measurement in the income statement are INCOME and EXPENSES  FINANCIAL ANALYSIS AND REPORTING come statement Snowball Corporation’s Income Statement For the Year Ended December 31, 2023 Sales Revenue XX Less: Cost of goods sold XX Gross Profits XX Operating Expenses Selling Expense XX General and administrative XX Expense Lease Expense XX Depreciation Expense XX Total Operating Expense XX Operating Profits XX Less: Interest Expense XX Net profits before taxes XX Less: Taxes XX Net profits after taxes/ Net XX TYPICAL ACCOUNT FINANCIAL ANALYSIS AND REPORTING TITLES USED ASSETS Balance sheet Current Assets – short-term assets, expected to be converted into cash within 1 year or less TERM DEFINITION It is any medium of exchange that a bank will accept for deposit at face value. It CASH includes coins, currency, checks, money orders, bank deposits and drafts. These are short-term, highly liquid investments that are readily convertible to CASH known amounts of cash and which are EQUIVALENTS subject to an insignificant risk of changes in value  FINANCIAL ANALYSIS AND REPORTING Current Assets TERM DEFINITION It is a written pledge that the customer will NOTES RECEIVABLE pay the business a fixed amount of money on a certain date These are claims against customers ACCOUNTS arising from sale of services or goods on RECEIVABLE credit. This type of receivable offers less security than a promissory note These are assets which are (a) held for sale in the ordinary course of business (b) in the process of production for such sale INVENTORIES or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services These are expenses paid for by the  FINANCIAL ANALYSIS AND REPORTING Non-current assets TERM DEFINITION These are tangible assets that are held by an enterprise for use in production or supply of good or services or for rental to others or for PROPERTY, PLANT AND administrative purposes and which are EQUIPMENT expected to be used during more than one period. Included are such items as land, building, machinery and equipment, furniture and fixtures, motor vehicles and equipment It is a contra account that contains the sum of the periodic depreciation charges. The ACCUMULATED balance in this account is deducted from the DEPRECIATION cost of the related asset – equipment or buildings – to obtain book value.  FINANCIAL ANALYSIS AND REPORTING Non-current assets TERM DEFINITION These are identifiable, nonmonetary assets without physical substance held for use in the production or supply of goods or services, for rental to others, for administrative purposes. INTANGIBLE ASSETS These include goodwill, patents, copyrights, licenses, franchises, trademarks, brand names, secret processes, subscription lists and non-competition agreements  FINANCIAL ANALYSIS AND REPORTING LIABILITIES Current Liabilities – short-term liabilities, expected to be paid within 1 year or less TERM DEFINITION This account represents the reverse ACCOUNTS relationship of the accounts receivable. By PAYABLE accepting the goods or services, the buyer agrees to pay for them in the near future It is like a notes receivable but in a reverse sense. It is the business entity is the maker of the note; that is the business entity is NOTES PAYABLE the party who promises to pay the other party a specified amount of money on a specified future date  FINANCIAL ANALYSIS AND REPORTING Current Liabilities TERM DEFINITION Amounts owed to others for unpaid ACCRUED expenses. This account includes salaries LIABILITIES payable , utilities payable and taxes payable When the business entity receives payment before providing its customers with goods or services, the amounts received are recorded UNEARNED in the unearned revenue account (liability REVENUES method). When the goods or services are provided to the customer, the unearned revenue is reduced and income is recognized These are portions of mortgage notes, CURRENT PORTION bonds and other long-term indebtedness OF LONG-TERM  FINANCIAL ANALYSIS AND REPORTING Non-current Liabilities TERM DEFINITION This account records long-term debt of the MORTGAGE business entity for which the business entity PAYABLE has pledged certain assets as security to the creditor. Business organizations often obtain substantial sums of money from lenders to BONDS PAYABLE finance the acquisition of equipment and other needed assets  FINANCIAL ANALYSIS AND REPORTING Owner’s Equity TERM DEFINITION This account is used to record the original and additional investments of the owner of the business entity. It is increased by the amount of profit earned during the year or is CAPITAL decreased by a loss. Cash or other assets that the owner may withdraw from the business ultimately reduce it. This account title bears the name of the owner When the owner of a business entity withdraws cash or other assets, such are WITHDRAWALS recorded in the drawing or withdrawal account rather than directly reducing the owner’s equity account TYPICAL ACCOUNT FINANCIAL ANALYSIS AND REPORTING TITLES USED INCOME STATEMENT TERM DEFINITION It is the inflow of money or other (including claims to money, such as sale made on REVENUE OR credit) that results from sales of goods or INCOME services from sales of goods or services or from the use of money, property. The result of revenue is an increase in assets Revenues earned by performing services for a customer or client, for example, SERVICE INCOME accounting services by a CPA firm, laundry services by a laundry shop Revenues earned as a result of sale of SALES merchandise; for example, sale of building  FINANCIAL ANALYSIS AND REPORTING TERM DEFINITION It involves the outflow of money, the use of other assets, or the incurring of a liability. EXPENSES Expenses include the costs of any materials, labor, supplies and services used in an effort to produce revenue The cost incurred to purchase or to produce the products sold to customers COST OF SALES during the period; also called cost of goods sold Includes all payments as a result of an employer-employee relationship such as SALARIES OR salaries or wages, 13th month pay, cost of WAGES EXPENSES living allowances and other related benefits TELECOMMUNIATIO Expenses related to use of related to use of  FINANCIAL ANALYSIS AND REPORTING TERM DEFINITION Expense of using supplies (e.g. office SUPPLIES EXPENSE supplies) in the conduct of daily business Expense for space, equipment or other RENT EXPENSE asset rentals Portion of premiums paid on insurance INSURANCE coverage (e.g. on motor vehicle, health, EXPENSE life, fire, typhoon or flood) which has expired. The portion of the cost of a tangible asset DEPRECIATION (e.g. building and equipment) allocated or EXPENSE charged as expense during an accounting period The amount of receivables estimated to be UNCOLLECTIBLE doubtful of collection and charged as ACCOUNT EXPENSE expense during an accounting period  FINANCIAL ANALYSIS AND REPORTING THANK YOU