INTRODUCTION TO FINANCIAL ACCOUNT

By Pradeep Pandey Rahul Mishra Haribhau Paithankar

ACCOUNT

A Record in the general ledger that is used to collect and store similar information. Example, a company will have a Cash account in which every transaction involving cash is recorded. A company selling merchandise on credit will record these sales in a Sales account and in an Accounts Receivable account
Pradeep Pandey
2

Two main forms of accounting information

Financial Accounts - Financial accounts are concerned with classifying, measuring and recording the transactions of a business.

Pradeep Pandey

Financial Accounting

Financial accounting: Specialized branch of accounting that keeps track of a company's financial transactions. Using standardized guidelines, transactions are recorded, summarized & presented in a financial report such as an income statement or a balance sheet.
Pradeep Pandey
4

The process of summarizing financial data taken from an organization's accounting record and publishing in the form of annual reports for outsiders. Financial accountancy is governed by both local and international accounting standards.
Pradeep Pandey

Generally Accepted Accounting Principles (GAAP)

GAAP : Based on the fundamental principles of accounting-concepts such as cost principle, matching principle, full disclosure, going concern, economic entity, relevance, and reliability.

Pradeep Pandey

Four Types of Financial Statements

1. 2. 3. 4.

Income statement Balance sheet Statement of cash flows Statement of stockholders' equity

Hari Paithankar

Income Statement

Reports a company's profitability during a specified period of time(could be one year, one month, three months, 13 weeks) Shows the results of operating during those accounting periods Also prepared using the Generally Accepted Accounting Principles (GAAP)
Hari Paithankar
8

Main components of Income statement

Revenues: include such things as sales, service revenues, and interest revenue.

Expenses: include the cost of goods sold, operating expenses (such as salaries, rent, utilities, advertising)

Hari Paithankar

Gains: Measured by the proceeds from the sale minus the amount shown on the company's books.

Losses: result from the sale of an asset for less than the amount shown on the company's books.

Hari Paithankar

10

Profit and Loss Account

Summarize the incomes and expenses of a company in a given period of time

Also includes accruals too, which are incomes that will be realized only after the particular Profit and Loss Account statement was prepared.

Hari Paithankar

11

Hari Paithankar

12

Balance Sheets

1. 2.

3.

Provide clear picture of the financial condition of the company Lists in detail the tangible and the intangible goods that the company owns or owes. The balance sheet is organized into three parts Assets Liability Statement of Stockholders' Equity
Hari Paithankar

13

Assets

1. 2.

Include anything that the company actually owns and has disposal over. Examples : cash, lands, buildings, equipment, machinery, furniture, patents and trademarks, and money owed by certain individuals to the particular company. Assets are classified into: Current Assets Fixed assets
Hari Paithankar
14

Current Assets

Include company can quickly monetise. Eg: cash, government securities, marketable securities, accounts receivable, notes receivable (other than from officers or employees) inventories, prepaid expenses Which Could be converted into cash within one year in the normal course of business.
Hari Paithankar
15

Fixed Assets

long-term investments of the company. Eg: land, plant, equipment, machinery, leasehold improvements, furniture, an expected useful for business in a number of years or decades. Usually accounted as expenses. They are normally not for resale and are recorded in the Balance Sheet at their net cost less of accumulated depreciation.
Hari Paithankar
16

Other Assets

Include intangible assets, such as patents, copyrights, other intellectual property, royalties, exclusive contracts, and notes receivable from officers and employees.

Hari Paithankar

17

Liability
An obligation that legally binds an individual or company to settle a debt, when one is liable for a debt, they are responsible for paying. Liabilities are money or goods acquired from individuals, or other corporate entities Examples: loans, sale of property, services to the company on credit.

Rahul Mishra

18

Current Liabilities

This are accounts, and notes, taxes payable to financial institutions, accrued expenses (e.g.: wages, salaries), Current payment due should be within one year.

Rahul Mishra

19

Long-Term Liabilities

This are mortgages, intermediate and long-term loans, equipment loans, and other payment obligation due to a creditor of the company. Long-term liabilities are due to be paid in more than one year

Rahul Mishra

20

Statement of Cash Flows

Explains the change in a company's cash during the time interval indicated in the heading of the statement. Useful in the determination of the companys liquidity in a given period of time. The change is divided into three parts: Operating activities Investing activities Financing activities.
Rahul Mishra
21

Operating activities: explains how a company's cash have changed due to operations. Investing activities: Refer to amounts spent or received in transactions involving long-term assets. Financing activities: Reports such things as cash received through the issue of long-term debt, or money spent to retire long-term liabilities.
Rahul Mishra
22

Shareholder's equity

(also called as net worth, or capital) is money or other forms of assets invested into the business by the owner, or owners, to acquire assets and to start the business. Any net profits that are not paid out in form of dividends to the owner, or owners, are also added to the shareholders equity. Losses during the operation are subtracted from the shareholders equity. Assets are calculated the following way: Assets=Liabilities + Net worth
Rahul Mishra
23

Statement of Stockholders' Equity

Lists the changes in stockholders' equity for the same period as the income statement and the cash flow statement. The changes will include items such as net income, other comprehensive income, dividends, the repurchase of common stock, and the exercise of stock options.
Rahul Mishra

24

Conclusion

Financial statements are useful, because they show the financial condition of a company at a given period. There are many types of financial statements uses and purposes, measuring different financial aspects of the company. They can be used for both internal-, and external uses
Rahul Mishra
25

Thank You..!
26