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Chapter 4 Basic Finance 2023 2024

This chapter discusses the relationship between finance and accounting. It defines accounting as recording financial transactions and determining a business's results and financial condition. Finance deals with managing money resources and funds. Accounting provides financial information to internal and external users through financial statements. The chapter differentiates financial accounting, managerial accounting, and financial management, explaining that they are interrelated and help managers make financial decisions.

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PACIOLI-EDRADA, BEA
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88 views

Chapter 4 Basic Finance 2023 2024

This chapter discusses the relationship between finance and accounting. It defines accounting as recording financial transactions and determining a business's results and financial condition. Finance deals with managing money resources and funds. Accounting provides financial information to internal and external users through financial statements. The chapter differentiates financial accounting, managerial accounting, and financial management, explaining that they are interrelated and help managers make financial decisions.

Uploaded by

PACIOLI-EDRADA, BEA
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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BASIC FINANCE

CHAPTER 4
FINANCE AND ACCOUNTING

Introduction
Both finance and accounting deal with money. Accounting records financial
transactions which involve finance that needs to be properly accounted for. Therefore,
finance and accounting are related in that they both deal with money and financial
transactions.
This chapter will introduce accounting to students, relate it to finance, and explain
how the two works in business. This will open the student's mind to financial statements,
their interest for financial statements and for the purpose of the statements. The different
fields of financial accounting, managerial accounting, and financial management will be
discussed, including how they relate to one another and how they operate in business.

INTENDED LEARNING OUTCOMES


At the end of the chapter the students should be able to:
1. Define accounting
2. Relate accounting to finance and appreciate their roles in business
3. Explain the different financial statements
4. Discuss the interests of the different users of financial statements in the said statements and
how such statements serve their purpose
5. Differentiate financial accounting, managerial accounting, and financial management and
appreciate how they relate to each other and operate in business

DISCUSSION
ACCOUNTING: DEFINITION
1. The art of recording, classifying, and summarizing transactions and events, which are,
in part at least, of a
2. Financial character and interpreting the results thereof
3. A service activity for decision makers; provides them with the needed financial
information regarding a business unit
4. An information system

USERS OF ACCOUNTING INFORMATION


1. Internal users - owners, managers, and employees or those who belong to the
organization.
2. External users — customers, creditors, suppliers, competitors, the government, and the
community to where the business belongs.
BASIC FINANCE
FINANCE: DEFINITION
1. the management of money or the money resource itself
2. the effective and efficient acquisition, allocation, and utilization of funds
TYPES OF CAPITAL
1. Human capital - the human resource.
2. Non-human capital
2.1 Tangible — assets which have physical existence like land, building, inventories, etc.
2.2 Intangible - no physical existence but provides benefits to the organization like
copyright, patents, financial assets, etc.

FINANCE AND ACCOUNTING


1. Finance deals with sources and uses of funds. Accounting deals with recording financial
transactions to determine
results of operation and financial condition of the business; helps financial managers make
decisions.
2. Profit maximization is the ultimate objective of any business firm because it is the best
way to increase the
owners' wealth and the value of the company. Finance ensures efficient management of funds
and accounting
accounts for results of operation to determine profits earned.
3. Accounting profits are used by managers and owners to measure the performance of firms.
Financial statements,
the products of accounting, are indispensable tools to management, especially to financial
managers.
BASIC FINANCIAL STATEMENTS
1. Income Statement - shows the results of operation (profit or loss); contains the revenue
and expense accounts of the business.
2. Balance Sheet - shows the financial condition or position of the position; shows the assets,
liabilities, and owner(s)' equity of the business.
3. Statement of Changes in Owner(s)' Equity - shows the investments, withdrawals, profits
or loss of a sole proprietorship or partnership and the capital stock, additional issuances of
capital stock, dividends paid, profit or loss of the business, and any additional paid in capital
accounts.
4. Cash Flow Statement - shows cash receipts and cash disbursements; hence, the cash
position of the company.
BASIC FINANCE
FINANCIAL ACCOUNTING, MANAGERIAL ACCOUNTING, AND FINANCIAL
MANAGEMENT
1. All three fields (financial accounting, managerial accounting, and financial
management) are interrelated and interdependent and help managers to make financial
decisions that will meet their goals and maximize wealth.
FINANCIAL ACCOUNTING
1. Deals with the recording of business transactions and the preparation of the financial
statements.
2. Provides objective financial information about the performance and stability of a
company or business.
MANAGERIAL ACCOUNTING
1. The branch of accounting concerned with providing information to managers, those
inside the organization, and those who direct and control the company's operations
2. Includes information on the costs of products and services, budgets, performance
reports, and other information which assists managers in their planning and control
activities
3. Focuses on the role of accounting information in the decision-making process of
managers with responsibilities inside the organization
FINANCIAL MANAGEMENT
1. Concerned with the efficient and effective allocation, acquisition, and use of funds.
2. Financial managers - responsible for forecasting and planning, making major
investment and financing decisions, coordination and control, and dealings with the
financial markets.

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