Financial Accounting Analysis

7/25/2019 Financial Accounting Analysis

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.

UNIT 1

Aounting yle! onepts and t"eir onventions and t"eir

impliations in t"e data generation. #e$inition o$ transation and

aounts!%lassi$iation o$ aounts& Aounting e'uations stati anddynami and t"eir use !(roess o$ aounting boo)s o$ original

entry& ledger& trial balane!(reparation and presentation o$ $inal

statements.

UNIT II

M*ASU+IN, BUSIN*SS IN%OM*!#istintion bet-een apital

and revenue Mat"ing revenue and ependiture !T"e role o$

aounting poliies li)e depreiation and inventory valuation on

reported inome.


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UNIT III

UN#*+STAN#IN, T*+MINA/ A%%OUNTS!Inomestatement !Balane s"eet.(rovisions o$ ompanies0 at 123&

relating to t"e preparation and presentation o$ $inal aounts o$

ompanies. ,uidelines $or dislosure Taation and ta planning

orporate ta rates and ta struture!T"e e$$et o$ inome ta on

business deisions.!Ta avoidane and evasion !Ta planning

!Ta s"elters!%arry $or-ard and set o$$ losses.


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UNIT I4

5INAN%IA/ ANA/6SIS!T"e sope and purpose o$ $inanial

analysis!5inanial statements analysis!Hori7ontal analysis

!4ertial analysis !+atio analysis li'uidity Ativity!Strutural

!%overage and pro$itability ratios . %ommon si7e and inde

analysis (reditive po-er o$ ratio analysis! In$lation and

$inanial analysis !(roblems in $inanial statement analysis!

Balaned sore ard.

UNIT 4

5UN#S 5/O8 ANA/6SIS! %onepts o$ $unds !Asertaining

$unds $rom operations Soures o$ $unds !Uses o$ $unds!(reparation and analysis o$ $unds $lo- statement.%as" $lo-

statements!(reparation and analysis o$ pro!$orma $inanial

statements (erentage o$ sales approa"!Statistial $oreasting

te"ni'ues .


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INTRODUCTION

8"at is a business9

Business is identi$ying ustomer needs to ater to t"e ustomer needs

by employing available resoures -it" an ob:etive to maimi7e

s"are"olders -ealt".

+A8

MAT*+I

A/S

8O+;

IN

(+O,+*

SS

5INISH

*#

,OO#S

+*%*I4AB/*S

%ASH SA/*S


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8"at is 5inanial aounting9

It is a me"anism -"i" is to onsolidate business transations& byreording& lassi$ying and generating in$ormation -"i" assists

organisation to a"ieve its ob:etives.

8"y is 5inanial aounting neessary9

Sine "uman memory is limited& aounting is re'uired to )eep

tra) o$ business transations.

To avoid on$usion and ambiguity& in )eeping tra) o$ businesstransations.


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Accounting concepts

Business entity concept:In Aounting& business is treated as a

separate entity $rom its o-ners. Aounts prepared give

in$ormation about t"e business& but not about t"e o-ners.

*.g.< a biyle dealer may pur"ase yles $or personal use. T"e

yle0s pur"ases $or trading purposes -ill beome a part o$

business transations and a yle pur"ased $or personal use -ill

not be a part o$ business transation.


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Going concern concept:It is presumes t"at t"e $irm -illontinues to eist inde$initely.

The cost concept:business involves e"ange o$ goods and

servies. T"e money paid $or t"e e"ange beomes t"e ost o$ t"e

goods. T"e prie& -"i" is atually paid& is reorded in t"e

aounting boo)s.


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Dual concept:It is based on t"e priniple t"at $or every debit

transation& t"ere is a orresponding redit transation.

e.g. suppose a building is pur"ased $or +s =>>>>& business gets

a building and -ill part -it" as" $or similar amount.

Money measurement concept:Aording to t"is onept& only

t"ose transations are reorded -"i" an be epressed in

monetary terms.


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4 Accounting perio concept: As per going onern onept& t"e

assets are reali7able only at t"e time o$ li'uidation& and reditors -ill

be paid o$$ at t"at time.

2 5or pratial purposes& $inanial position o$ t"e onern is assessed

at regular intervals.

2

Matching o! cost an re"enue concept: A orret statement o$pro$it re'uired a distintion bet-een present& past and $uture

ependiture and distintion bet-een apital and revenue

ependiture.

8"en inome o$ a partiular aounting period is ta)en into

onsideration& t"en all epenses o$ t"at period -"et"er paid or not

are also onsidered.


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Accounting con"entions

Con"ention o! isclosure: Con"ention o! consistency: Con"ention o! conser"ation:

Con"ention o! materiality:


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T#$ RU%$& O' ACCOUNTING

Transations are broadly lassi$ied into

*penses?

losses

Inomes?

pro$its

Assets /iabilities

T"e language o$ $inanial aounting is debits and redits. In

*nglis" language& debit "as only a negative meaning redit "as only

a positive meaning. In aounting language& debit "as bot" negative

and positive meanings& redit also "as bot" positive and negative

meanings.


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Types o! accounts Rules Rules

(ersonal #ebit t"e reeiver %redit t"e giver

+eal #ebit -"at omes in %redit -"at goesout

Nominal #ebit all losses and %redit all gains and

epenses inomes


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Illustration():

1. Mr. ,anesan ommened business -it" a apital o$ +s.

2>>>>.

=. Boug"t goods $or as" o$ +s. @>>>>.

@. Sold goods $or as" o$ +s. =2>>>. #eposited in a ban) +s. =>>>>

2. Boug"t goods $rom ana)iraman -ort" +s. 12>>>

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Financial Accounting Analysis