Course Material: Syllabus self study, chapters, and short quizzes
EXAM: mainly exist of mcq and some open questions.
Always look for the bottom line
Goal of accounting
To provide useful information about a business to various groups management, shareholders,
employees, suppliers, banks, financial analysts .
Accounting contains a historical record of the financial transactions of a company for a specific period
usually one year Gaining an understanding of past performance to assist you with making
predictions about future performance.
Rules about accounting
There are regulations and principles governing how to prepare financial statements it can vary from
country to country. Our focus is INTERNATIONAL GAAP which is IFRS. GAAP stands for generally
accepted accounting principles.
Financial Statements:
. Balance Sheet
. Income Statement
. Statement of cash flows
. Statement of stockholders’ equity
. Footnotes
Fundamental concepts:
Conservatism, being incredibly careful/prudent
Accruals, matching principle match revenues and expenses in the year the occur
Going concern, in terms of publishing reports
Consistency, stinking the rules consistently
Separate entity, the company works on its own all the assets and revenues that the owner is
making on it’s own is not connected to the company.
Structure:
Balance Sheet: list of assets and liabilities of a company at a single point in time. The goal is to show the
resources that are available to the company and how these resources are funded.
Resources funding
Non current assets current assets liabilities debt equity
Assets
IAS definition: Probable future economic benefits obtained or controlled by a particular entity as a
result of a past transactions or events.
,Non-current assets:
Often called fixed assets and used on a continuing basis, and it is only recognized if purchased.
There are categories:
. Tangible asset, have a physical presence
. Intangible assets, have no physical presence
. Investments bought with the intention of holding for a long period
Investments are held at market value. Other non current assets must be recorded at cost and then
depreciates tangible or amortized intangible over their useful economic life.
Current assets:
Not used on a continuing basis
Expected to be converted into cash within an operating cycle
Normally valued at cost, except if the net realizable value cost
Liabilities
IAS definition: Probable future sacrifices of economic benefits arising from present obligations of a
particular entity to transfer assets or provide services to other entities in the future as a result of
past transactions or events.
A liability depends on future cash outflow. It can be classified as noncurrent and current.
Stockholder’s equity
IAS definition: The residual interest in the net assets of an entity that remains after deducting its
liabilities. In a business enterprise, the equity is ownership interest.
Equity explains who owns the business
, This ownership is then listed to the order in which they would be paid back on the dissolution of
a company.
EQUITY CALLED UP CAPITAL share capital/common stock RESERVES
. Called up capital:
Consists of mayor types of stock: common stock and preferred stock.
Terminology in this are can be confusing:
Authorized share capital: the max n of shares a company can issue
Issued/Called up capital: the actual n of shares in issue
Additional paid in capital: share premium share premium: additional value a company gets for
its shares
. Reserves
It is the undistributed gains of a company. The most common reserve is the retained earnings. The total
accumulated profits of the company that have been retained rather than distributed to shareholders as
dividends. While additional paid in capital is also a reserve, it is not usually used to pay dividends.
The balance sheet and the accounting equation:
ASSETS LIABILITIES CAPITAL
Example:
, Lecture 2 - Income statement
It shows the financial performance of a company. It essentially explains the changes of a company. It is
very popular statements for analysts, creditors and investors because it is used to predict future
performance and earnings.
The key elements: revenues, expenses, gains and losses.
IFRS prescribes the key heading to be disclosed in the income statement but it doesn’t prescribe a
specific format. This leads to different presentations of I/S at both national and international level.
IMPORTANT: the I/S and the B/S are explicitly linked.
Example:
Cash flow statements
They are needed to see if a company is actually getting cash from its operations. It provided cash based
information regarding operations of a company. It is important to access a company’s ability to generate
and meet future cash flows.
Explains the moment in cash and cash equivalents between current and prior accounting period.
categories: operating activities, investing activities and financial activities.
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