4H1CIC - Understanding Accounting Information and Data 2024-2025 PDF

4H1CIC - Understanding accounting information and data 2024-2025 Course responsable : Dr. Anouar KAHLOUL Associate professor - emlyon [email protected] Course modalities ▪ 12H ▪ 4 parts ▪ Assessment ▪ 100% final exam (MCQ, open question, exercises) ▪ In class: lecture and e...

4H1CIC - Understanding accounting information and data 2024-2025 Course responsable : Dr. Anouar KAHLOUL Associate professor - emlyon [email protected] Course modalities ▪ 12H ▪ 4 parts ▪ Assessment ▪ 100% final exam (MCQ, open question, exercises) ▪ In class: lecture and exercises, ▪ Outside class: reading, replicate exercises done in class, practice with suggested exercises. Objectives ▪ to develop your ability to: ▪ understand ▪ use the accounting information ▪ In order to: ▪ make economic decisions ▪ be able to talk to companie’s stakeholders (Investors, shareholders, suppliers, customers, banks, tax authorities…) Bibliography ▪ STOLOWY Hervé, DING Yuan (2017 or any further edition). Financial Accounting and Reporting: A Global Perspective. (Part 1 of the book only) ▪ https://library.em-lyon.com/Default/doc/SYRACUSE/543 377/financial-accounting-and-reporting-a-global-perspect ive-herve-stolowy-yuan-ding-luc-paugam Pedagogical Team ▪ Course Responsable ▪ Anouar KAHLOUL ▪ Teachers ▪ Edwige Nortier: [email protected] ▪ Xavier Neyrand : [email protected] ▪ Ines Gaddour: [email protected] ▪ Yan Bertrand: [email protected] ▪Departement Instructor : Thomas Delpech: [email protected] Summary ▪ Part 1: Introduction to Financial accounting ▪ Part 2: Preparing a Balance Sheet ▪ Part 3: Preparing an Income Statement ▪ Part 4: Closing entries Understanding accounting information and data Part 1: Introduction to Financial accounting Financial Accounting - Definition « Accounting is an organization system that makes it possible to enter, classify, record basic data and present Financial Statements reflecting a faithful image of the entity's financial situation and performance at the closing Date." (PCG - Article 121-1) Basic functions of Accounting Financial Accounting is an information system that performs the following basic functions: 1. Interpret and record 2. Classify 3. Summarize and communicate FINANCIAL STATEMENTS USED BY DECISION MAKERS Users, Information provided, Business Decisions Financial Information Provided Users – Profitability – Investors – Financial position – Creditors – Cash flows – Managers – Owners Business Decisions – Customers – Employees – Performance evaluations – Competitors – Stock investments – Tax strategies – Government – Labor relations authorities – Resource allocations – Investing – Borrowing Financial Act. vs Management Act. MANAGEM FINANCIAL ENT ACCOUNTI ACCOUNTI NG NG - Internal - External decision makers decision makers - Free choice of - Strict methods methods - Not regulated - Obligatory This course is restricted to the study of financial accounting The accounting process ▪ Accounting is an information system, ▪ that record financial transactions based on supporting, materialized document, ▪ abiding by the accounting rules, ▪ to produce summary financial statements, ▪ under the scrutiny of auditors. 12 Information asymetry Source: Atrill, Peter, et al. Financial Accounting for Decision Makers 9th Directors Ed, Pearson Education, Limited, 2019. review account elect report Shareholders elect Auditors  Accounting Standards ▪ Accounting complies with standards, called GAAP GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ▪ Examples: GAA French Internation P al GAAP US GAAP GAAP (PCG) (IFRS) ANC: IASB: FASB: Issue Autorité des International Financial r normes Accounting Accounting comptables Standard Board Standard Board Divergent conceptions of accounting French GAAP IFRS Accounting’s to be “the memory to provide information Mission of the company“ to the financial markets Conservatism + Conservatism - historical cost fair value Main monetary Actualisation Principles nominalism connection IFRS are stateless  between taxation independent from and accounting national legal and tax constraints 15 Accounting regulation in France ▪ Individual financial statements of all the companies in France must be published complying with the French GAAP (PGC, Plan Comptable Général). ▪ Consolidated financial statements of listed groups on European Stock Exchanges must comply with the IFRS. ▪ Consolidated statements of non listed groups may choose between IFRS and french GAAP. 16 Main accounting principles ▪ Accrual based accounting ▪ The principles of separate economic entity ▪ Conservatism ▪ Historical cost ▪ The principle of separate accounting periods Accrual based accounting ▪ Accrual basis : Recognises the impact of transactions in financial statements for the time period when revenues and expenses occur ▪ All companies ▪ French and International GAAP ▪ « comptabilité d’engagement » ▪ NOT Cash basis : recognises the impact when cash is received or disbursed « Comptabilité de caisse » ▪ Transactions are recorded at the point at which they occur  Example: gap between a sale and its cash collection The principles of separate economic entity and ongoing concern (continuity) ▪ The company is considered to be a separate entity, distinct from its owners and its economic partners. ▪ The accounts are drawn up on the presumption that the company will pursue its activities and will continue to operate for the foreseeable future. The principle of prudence (conservatism) ▪ Accounting conservatism is a principle that requires company accounts to be prepared with caution and high degrees of verification and yield to asymmetric treatment of uncertainty ▪  anticipation (provisions recorded when probable) of potential losses ▪  not recognize potential gains: (income recorded only when certain)  Example: fluctuations in value of shares Measurement ▪ Historical cost ▪ An asset is recorded in the accounts at its acquisition cost or at its production cost ▪ Subsequent modification of value: reductions in value or impairments incurred during the accounting period (depreciation/amortisation, provisions) ▪ Current cost  Accounting value ≠ fair value The principle of separate accounting periods ▪ The life of the company is divided into successive periods (accounting periods/years) ▪ Matching: assign to each accounting period the revenues and expenses resulting from activity undertaken in that period, and that period only, hence the need for adjusting entries. Example - ▪ Look for the financial statements of L’Oreal as of 31 december 2023. ▪ Publication is mandatory ; ▪ Annual report is easy to find for listed companies. ▪ Annual report is part of the communication of the company, that aims at conveying information to shareholders, analysts and other stakeholders. ▪ Annual report includes the financial statements of the parent company & the 23 consolidated financial statements of the Financial statements International French standards- standard-IFRS PCG STATEMENT OF INCOME BALANCE INCOME FINANCIAL SHEET STATEME POSITION STATEME NT STATEMENT STATEMENT NT OF OF Notes CHANGES IN EQUITY CASH FLOWS Notes 24 Balance sheet ▪ Statement of financial position ▪ shows where the company stands in financial terms on a specific date ▪ A snapshot of the business that shows what the company looks like at a specific date. Balance sheet ASSETS LIABILITIES What does the company do How is the company with its resources? How does it financed? apply them? What are the company’s resources? Income statement ▪ An activity statement that shows the revenues and expenses for a designated period of time. ▪ shows the details of a company’s profit-related activities over a period of time. ▪ Revenues increase the owners’ equity ▪ Expenses decrease it ▪ Income = Excess of revenues over expenses ▪ Loss = Excess of expenses over revenues ▪ Income = Profit = Earnings Notes ▪ refer to additional information that helps explain how a company arrived at its financial statement figures. ▪ They also help to explain any irregularities or perceived inconsistencies in year-to-year account methodologies Statement of Cash Flows ▪ Details the company’s sources and uses of cash during an accounting period. ▪ Enables the financial statement user to better understand the change in the cash balance shown on the comparative balance sheet. Statement of changes in equity ▪ opening equity + share capital increase/decrease + profit/loss – dividends = ending equity Goal of the financial statements Gives information for The The The cash financial profitability situation situation Cash Income Balance flow Statemen sheet stateme Financial t Statements nt Notes