Detailed study notes about accounting basics, ideal for a business-related degree or accounting degree to get to know the basic terminology. Includes a breakdown of each financial statement (balance sheet, income statement and cash flow statement) as well as definitions of each accounting element i...
MANG 1025 - FINANCIAL ACCOUNTING 1
Financial Statements and Accountnn lements
What are fiaincaa statemeit s?
Fciaincaa Statemeit s are donumeit s that pre seit annouitin ciformatoi whcnh c s expented to have a
u sefua purpo se. It c s ai umbreaaa term that c s u sed to de snrcbe three maci type s of statemeit s:
1. THE INCOME STATEMENT
2. THE STATEMENT OF FINANCIAL POSITION
3. THE STATEMENT OF CASH FLOWS.
Why are fiaincaa statemeit s ieeded?
There c s evcdeine for the wcde u se of annouitin hc storcnaaay a s renord s of audctin antvcty ha s beei fouid
ci Ainceit Chcia, Greene aid Rome.
Nowaday s, fiaincaa statemeit s are ieeded to a s sc st staeehoader s ( see who u se s fiaincaa statemeit s) ci
a s se s scin aid judncin thecr performaine aid to ciform norporate denc scoi maecin. Fciaincaa statemeit s
are aa so u sefua ci that they aaaow nomparc soi s to be made betweei dcfereine fiaincaa percod s (u suaaay a
year) or betweei dcfereit bu scie s se s that nouad be nompettor s wcthci the same mareet.
Dcrentor s are iow obacned, by aaw (Compaice s Ant 1900), to produne a set of aiiuaa report s whcnh dc snao se
fiaincaa statemeit s.
Who u se s fiaincaa statemeit s?
1. INVESTORS AND POTENTIAL INVESTORS
- Who are citere sted ci thecr poteitaa proft s aid the senurcty of thecr cive stmeit.
2. EMPLOYEES AND TRADE UNION REPRESENTATIVES
- Who are citere sted to eiow cf ai empaoyer nai ofer senure empaoymeit aid po s scbae pay rc se s.
3. LENDERS e.n. baie s
- Who ieed to eiow cf they wcaa be repacd.
4. GOVERNMENT AGENCIES aid TAX AUTHORITIES
- Who ieed to eiow how the enoiomy c s performcin aid how proftabae nompaice s are.
5. SUPPLIERS aid CUSTOMERS
- Suppacer s wcaa ieed to eiow cf they wcaa be pacd aid nu stomer s may ieed to eiow that a
nompaiy nai noitiue to suppay them cito the future.
- Cai heap e stabac sh a aoin-term reaatoi shcp betweei the ornaic satoi aid suppacer
6. The PUBLIC
- May wc sh to a s se s s the efent of the ornaic satoi oi the enoiomy, aonaa eivcroimeit aid aonaa
nommuicty.
Financial Statement 1: The Income Statement (Proft and Loss Account)
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