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Summary Accounting & Finance Year 2019/2020
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Summary for the Course Accounting and Finance full-time Master in Business Administration
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Accounting & FinanceBlock 01
Agency theory: Principal that is used to explain and resolve issues in relationship between business
principals and agents.
• Principals = shareholders
• Agents = companies executives
Sole trader = working on solo basis.
Countries use different accounting because of the tax a government wants.
Stakeholders: what kind of information does a stakeholder wants?
Cash positive company (TIAS) = Pay before service is delivered
Cash negative company (farmers) = Pay later
Forms of business organisation
• Sole Trader
• Partnership
• Limited liability partnership
• Limited partnership
o Ltd = private
Up to 499 shareholders
Raise funds through private placement
Lower liquidity of shares
Have fewer obligations to release financial statements and other information
o Plc = public
Raise capital from a wider range of investors through initial public offering. Seasoned equity offering:
the sale of additional shares in firms that already are publicly traded
Public offerings are marketed by investment banker or underwriters
Registration must be filed with the sec
What do stakeholders want with a financial statement:
Shareholders are owners – they want a return on their investment
Employees – want secure and rewarding jobs, including good remuneration, working conditions and
pension(?)
Managers – want secure and rewarding jobs too; plus behavioural requirements such as status and
influence
Government – know that providing the infrastructure and policies for a successful economy is one of
their key tasks (as Bill Clinton realised with his campaign logo “It’s the economy, stupid!”). Reviewing
company annual accounts and statements will provide signals in this task.
Suppliers – want payment, and a long business relationship...
,Block 02 the main financial accounting statements
The balance sheet = the starting point.
* The first financial accounting statement
• Assets = what the business owns/control
• Liabilities = What the business owes to outsiders
• Capital (Equity) = What the business owes the owner
This can be extended to:
Entity concept = Business exists separately from its owners
à Therefore: All transactions undertaken by business recorded from the business perspective.
à Follows that: When business is first created, it owns nothing and owes nothing.
Assets: Classifications of assets vary according to nature of business.
Current assets (circulating assets) Non-current assets (fixed assets)
• Cash and Bank balance • Tangible assets
• Inventories - Land
• Account receivables / debtors - Buildings. Includes all facilities
owned by the entity.
- Construction in progress
- Furniture and fixtures
- Cars & trucks
- Computer equipment: servers,
desktop computers, and laptops
- Computer software
• Intangible assets
- Intellectual property: brand
recognition, copyrights, patents,
trademarks, trade names and
customer lists.
- Goodwill: arises when a company
acquires another entire business.
The amount of goodwill is the cost to
purchase the business minus the fair
market value of the tangible assets
Current liabilities (Needs to be settled within Non-current liabilities
a year)
• Bank Overdraft • Debentures
, • Trade Payables • Long term loans
• Income received in Advance • Bonds payable
• Security deposits received • Deferred tax liabilities
• Bills • Long term lease obligations
• Liabilities accrued but not paid • Pension Benefit Obligations
• Dividend declared • Product Warranties
• Short term Loans
The equation for the horizontal layout
Example of horizontal balance sheet
ASSETS CAPITAL AND LIABILITIES
Non-Current Assets Capital 6,000
Land and buildings 4,000 Profit 100
Vehicles 1,500 Total capital 6,100
5,500
Current Assets
Inventory 2,000 Non-Current Liabilities
A/c receivable 2,100 Bank loan 2,500
Cash and bank 3,000 Bonds (Debentures) 2,000
7,100 4,500
Current Liabilities
_________ A/c payable 2,000
________
Total Assets 12,600 Total Capital and Liabilities 12,600
Example of vertical balance sheet
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