Financial Accounting PDF

Financial accounting: **Accounting** answers to the need for decision making and make decisions. a tool that provides information on the use of capital invested in a business as well as the results achieved with such application (it is an information system). **Objectives:** provide info on -...

Financial accounting: **Accounting** answers to the need for decision making and make decisions. a tool that provides information on the use of capital invested in a business as well as the results achieved with such application (it is an information system). **Objectives:** provide info on - Financial position (equity and its value) - Changes in equity (controls and variations) - Profit or loss from operation (analysis of expenses, income, and its result) - Info to stakeholders (investors, stakeholders, employees, external banks, suppliers, customers, state, other creditors). **Conceptual framework** Purpose: Help ppl prepare financial statements in app of standards, help form opinion on FS to standards and help users interpreting info contained in fs. 5 financial statements: 1\. **Balance sheet** (statement of financial position) 2\. **Profit and loss account** (statement of comprehensive income for the period) 3\. **Statement of changes in financial position** (changes in equity for the period) 4\. Statement of **Cash Flows** for the period 5**. Notes,** other statements and explanatory material **objective** of financial statements is to **provide information** about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. financial statements must **\"present fairly\"** the financial position, financial performance and cash flows of an entity. Lesson 3- The Accounts- we will have a code of accounts for the exams. **Balance sheet** *shows the accumulated wealth at a particular point in time.* Related to obligations to pay, which correspond to the remuneration of productive factors, and to the rights to receive, which correspond to the remuneration of sales and services rendered. ▪ **Asset** --a resource controlled by the entity because of past events and from which future economic benefits are expected to flow to the entity. **NCA**- held long term. Fixed life more than a year. *Tangible-* (buildings, machinery, equipment) *Intangible-* (patents, trademarks) **CA-** held short term. Turn into cash in less than a year. (inventory, bank account) ▪ **Liability-** a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. **NCL-** Long term debts (loans) only non-current if they tell it to us, cannot assume how long will be paid. **CL-** (debts of business that must be paid within 1 year) ▪ **Equity** -residual interest in the assets of the entity after deducting all its liabilities. =Assets -- liabilities Total equity + liabilities of a company is the value of such company. The equity of a company is not static. In fact, it is subject to variations caused by normal or extraordinary events (theft, fire). Thus, we may find changes in the value of equity: **Fact:** is the operation that causes any variation in the composition and / or the value of equity. Can be positive or negative, depending on cause decrease or increase in equity value. Negatives: Expenses (including losses); Positives: Income (including gains). Accounting equation: **Assets = Equity + liabilities** (capital) ***Total assets = equity + liabilities (must match).*** If already paid, then a negative asset and expense on profit. If not yet paid, it is a liability. **Income statement:** *shows the wealth (profit) generated over a particular period* Related to the use and consumption of resources (expenses) in the production and sale of goods and services (revenue-income). The difference between income and expenses determines the result of the year. ▪ **Income** -- Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those related to contributions from equity participants. **▪ Expense** -- Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those related to distributions to equity participants.  **Code of accounts** 1. NFR= **Assets** 2. Accounts recievable and payable= **Assets and liabilities** 3. Inventories= **Assets** 4. Investment= **Assets** 5. Capital, reserves...= **Equity** 6. **Expenses** 7. Income= **Revenue** 8. **results** A **double-entry bookkeeping system (debits and credits)** is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different accounts. Acquisition of inventories with immediate payment. We would have to increase assets on inventories and decrease assets in cash and bank. For each operation need to use at least two different accounts. **T accounts-** each transaction debit entries must equal its credit entries. If debits \> credits -\> account has debit balance. If credits \> debits -\> account has credit balance. Total of debit balances = total of credit balances. Have T accounts for all accounts we use. Individual accounts for each account. How to decide between debit or credit? If it has been done correctly, the balance of all the accounts having positive balances will equal the negative ones. Depend on the nature of the account. Golden rules of accounting: Increases profit and increases equity. Decrease profit and decrease equity **Value Added Tax (VAT)-** general tax on the consumption of goods and services that is levied at all stages of the economic circuit, from the importer or the producer up to the final consumer.