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Lecture 1

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4 views

Lecture 1

Uploaded by

Yara Bartels
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Accounting

Animals & Business


2022-2023
Financial Accounting

1. Introduction
2. Depreciation
3. Balance Sheet
4. Annual Report (Book keeping)
5. Profit & Loss Account
6. Mock Exam
Today

• What is accounting?
• Annual Report
• Financial Statements
– Balance Sheet
– Profit & Loss Account
Learning objectives

• Student can explain the difference between financial accounting and


management accounting.
• Student can explain the different items on a balance sheet and Profit & Loss
account.
• Student can explain the use of the Accrual Accounting method
– Student can explain the differences between Expenditures and Expenses
and between Revenues and Receipts
What is Accounting?

the process of recording, classifying, and summarizing


business transactions

Boston consulting group


Necessary?
Financial Accounting vs. Management Accounting

Financial accounting Management accounting


scorekeeping, supports the internal
historical orientation planning (future-oriented)
that provides information decisions made by
to owners and others management
outside the organization

Pixabay
Financial Accounting vs. Management Accounting

1. Reporting/ Usage
• External (shareholders, tax authorities, banks) (F)
– Report financial performance by:
• Profit and Loss account
• Balance Sheet
• Cash flow statement
• Internal (M)
– Planning
– Control
– Decision Making
Financial Accounting vs. Management Accounting

2. Legal Requirements
– Obligatory (F)
– Voluntary (M)

3. Focus on individual parts of the business


– Complete (F)
– Partial (distinguish between products) (M)
Financial Accounting vs. Management Accounting
4. Generally accepted accounting principles (local)
– Uniform using GAAP (F)
– No standards (M)

5. Time dimension
– Past (F)
– Present and Future (M)

6. Report frequency
– Often Annual, after several weeks (F)
– Frequent & Timely (M)
Annual Report
Annual Report

• Report about the past financial year


– Financial Results (Before Tax)
– Owners Equity vs Debts (Loans)
– Sometimes also shows private income and expenditures
– Sometimes also includes Technical Parameters
Content Annual Report
• Financial Audit – Explanations
– Accountancy Assignment • Explanation General
– General information • Explanation Balance
– Results analyses • Explanation Profit and Loss
– Financial position account
• Financial Structure • Additional Information
• Liquidity position – Profit sharing
• Annual Financial Statement – Progress Capital of owners during
– Start and End Balance financial year
• Appendix
– Profit and Loss account
– VAT supplement
– Depreciation
– Investment setting
Financial Statements
Balance sheet

Statement of the financial conditions of a company on a specific date.


Shows what the company owns and owes
Balance Sheet
Farm Janssen
or Cre
b et December 31, 2016 Lia dit o
e
D set s bili r
tie
As Assets Liabilities
s
Current Assets Current Liabilities
- Cash/ Bank - Accounts Payable
- Accounts Receivable
- Inventories
Fixed Assets Long-Term Liabilities
- Land Owners’ Equity
- Buildings
- Equipment

Total Assets = Total Liabilities + Owners Equity


• Assets: something of value the firm owns and uses
– Current assets: current cash holdings or something that will be used or turn
into cash within the current accounting period (<1 year)
– Fixed assets: something the firm owns and uses that will not turn into cash
within the accounting period (> 1 year)
Fixed (non-current) vs. Current Assets

Kindersay.com
• Liabilities: an obligation to pay a debt
– Current liabilities: a debt that must be paid within the next accounting
period (< 1 year)
– Long-term liabilities: a debt that must be paid after the next accounting
period (>1 year)
• Owners’ Equity (net worth) (Value of assets that the owner can claim)
The accounting equation:
Assets = Liabilities + Owners’ Equity
Small Assignment Balance Sheet
Profit & Loss Account (=Income statement)

Calculates the net profit or loss of a company in a fiscal year


(accounting period)
• Revenues (Sales) – Expenses (Costs) = Profit or Loss

• Accrual Accounting: Income must be recognized in the accounting periods to


which they relate rather than on cash basis
Accrual Method of Accounting
Accrual Method of Accounting

• Revenues are recorded when they are earned, not when the company receives
the money

• Matching Principle: Costs (expenses) are assigned to the period that revenues
related to those costs are made. When there is no direct link to revenues costs
will be assigned to the accounting period where they are used up.
Revenues (Sales) vs Receipts (Cash Inflow)

Income assigned to that production period Actual Receipts (Cash inflow)


Occurs in the Profit & Loss account
Revenue but not a Receipt

Products sold on
account
Receipts but not Revenues

• Refinancing
• Accounts receivable are
being collected
• Selling a machine for its
bookvalue

• Private investments
Expenses (Costs) vs Expenditures (Cash Outflow)

Costs related to a production year Actual Payments


Occurs in the Profit & Loss account
Expense but not an Expenditure

• Depreciation
• Selling a machine
below its bookvalue
Expenditure but not an Expense

• Investment
• Financial Lease
• Repayment of a loan
• Products bought but
not used this year

• Private withdrawal
• Cross word Puzzle
Homework

Basics of Financial Management (Before Lecture 2)


• Read: Chapter 2 + make the Assignments
• Read: Chapter 3.1 + 3.2
• Make the assignment from the exercise book: 3.1, 3.2 & 3.3

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