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Summary Introduction To Finance and Accounting
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Summary Introduction To Finance and Accounting
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lOMoARcPSD|11911780Introduction to finance and accounting
Chapter 1 & 2.
The accounting system can be divided into 2 sections. Financial accounting reports (creditors and
investors, external decision makers) and managerial accounting reports (managers, internal decision
making). During this course we mainly focus on the financial accounting decision makers.
The four basic financial statements:
Four financial statements are normally prepared by profit-making organizations for use by investors,
creditors and other external decision makers.
- Balance sheet: reports the economic resources it owns and the sources of financing for
those resources.
- income statement: reports the revenues minus the expenses during the accounting period
- statement of stockholders equity: reports the change in each of the company’s stockholders’
equity accounts, including the change in the retained earnings balance caused by net income and
dividends, during the reporting period.
- statement of cashflows: reports the income and outgo of cash during the accounting period.
The four basic financial statements (jaarrekening) can be prepared at any point in time such as: end
of the year, quarterly and monthly.
Balance Sheet:
Balance, so: assets = liabilities (from creditors, schuldeijsers) + stockholders’ equity (from
stockholders, aandeelhouders).
, lOMoARcPSD|11911780
Income statement:
On the income statement we report the expenses and the revenues. With both of these we can
calculate the net income. It is a measure of performance for the business.
- Revenues are amounts expected to be received for goods or services that have been delivered to
a customer, whether or not the customer has paid for the goods or services.
- Expenses represent the amount of resources the entity used to earn revenues during the period.
Expenses reported in one accounting period actually may be paid for in another accounting period.
Some expenses require the payment of cash immediately, while others require payment at a later
date. It are the resources used to earn the periods profit.
Statement of stockholders equity:
Beginning retained earnings + net income – dividends = ending retained earnings. Retained
earnings are the profits that a company has earned to date less any dividends or other distributions
paid to investors. This changes when there is an entry to the accounting period that impacts a revenues
or expense. The common stock is the amount invested in the business by stockholders.
Statement of cash flows:
When cash flows in or out of the company this needs to
be reported on the balance sheet under cash flow.
+/- cash flows from operating activities.
+/- cash flows from investing activities.
+/- cash flows from financing activities.
Change in cash flow
+ beginning cash flow
Ending cash balance.
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