1.introduction to financial accounting

8/2/2019 1.Introduction to Financial Accounting

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Introduction to Financial

AccountingInformation as an Accounting System

Kailashinie Thiranagama


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Manufacturing Businesses

General Motors Cars,Trucks,Vans

Intel Computer Chips

Boeing jet aircraft

Nike Athletic shoes and apparel

Coca-Cola Beverages

Sony Stereos and Television

They directly manufacture Products and Sells

Types of Businesses


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Merchandising Businesses

Wal-mart -General Merchandise

Toys R us -Toys

Circuit City -Consumer Electronics

Lands End -Apparel

Amazon.com -Internet Books,Music

Its something like buying and selling

Types of Businesses


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Service Businesses

Disney -Entertainment

Delta Air Lines -Transportation

Asiri Hospitals -Medical Services Merrill Lynch -Financial Advice

Telecom -Telecommunication

They just only provide Services to their Customers

Types of Businesses


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There are 3 types of ownerships

Proprietorship

Partnership Corporation


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A Proprietorship is owned by one individual

Advantages

Ease in Organizing

Low cost of Organizing

No taxation an entity level

Disadvantages

Limited Source of financial

Resources Unlimited Liability

No continuity of existence


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A Partnership is owned by two or more individual

Advantages

More financial resources

than a proprietorship Additional management

skills

Disadvantages

Have to pay taxes @

entity Unlimited Liability

No continuity of existence


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A Corporation is organized under company law asa separate legal entity

Advantages

Ability to obtain large

amounts of resources byissuing stocks

Limited Liability

Separate legal Entity

Disadvantages

Double Taxation


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What is Accounting?

A language that provides information about the

financial position of an organization

Process of identifying, measuring and reporting

financial information of an entity The process of identifying, measuring and

communicating economic information to permitinformed judgments and decisions by users ofthe informational

-American Accounting Association


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Branches of Accounting

Financial Accounting

Cost Accounting

Managerial Accounting Tax Accounting

Auditing


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Accounting Rules

Generally AcceptedAccounting Principles

(GAAP)

Financial AccountingStandards Board

(FASB)

Accounting Standards

(AS)

Securities andExchange Commission

(SEC)


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The Environment of Accounting

Business Environment

Sole Trader

Partnerships

Limited Liability

Regulatory Environment

Company law

CSE listing requirement

Accounting Standards

International Environment

Internal Accounting Studies

Globalization

Accounting

Business

EnvironmentRegulatoryEnvironment

InternationalEnvironment

Society

Society Society


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Users of Financial Statements

1. Investers

2. Loan Providers

3. Employees4. The analyst-adviser group, including

financial analysts and journalists,

economists, statisticians, researchers,trade unions, Stockbrokers, and otherproviders of advisory services


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5. The business contact group, includingcustomers, trade creditors and suppliers and ina different sense, competitors, business rivalsand those interested in mergers,amalgamations and takeover.

6. The Government, including tax authorities,departments and agencies concerned with thesupervision of commerce and industry, andlocal authorities.

7. The public, including and other community andspecial interest group such as political parties,consumer and environmental protectionsocieties and regional pressure groups.


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Process of Financial Accounting

Source Documents

Day Books / Journals

Ledger (Accounts) Trail Balance

Financial Statements : Trading & Profit

&Loss A/C, Balance Sheet International of financial statements


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Organizations Success

The primary questions about anorganizations success that decision

makers want to know are:

1. What is the financial picture of theorganization on a given day?

2. How well did the organization doduring a given period?


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Understanding FinancialStatements

Balance Sheet

Income Statement Cash-Flow Statement


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The Balance Sheet

Statement of Financial PositionCalendar YearFiscal Year

Assets LiabilitiesOwners Equity


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The income Statement

Revenues

(Cost of goods sold)

Gross Profit

(Administrator, S&D and Finance Expenses

Net Profit


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Cash-Flow Statement

Operations

Investments

Financing


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Annual Report

Annual Report A document prepared bymanagement and distributed to currentand potential investors to inform them

about the companys past performanceand future prospects

The annual report is one of the most

common sources of financial informationused by investors and managers.


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Annual Concepts

Business Entity

Money Measurement

Going Concern

Historical Cost

Prudence / Conservatism

Materiality

Objectivity

Consistency

Accruals

Uniformity

Relevance