Introduction to Financial Account

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INTRODUCTION TO

FINANCIAL ACCOUNT

By Pradeep Pandey

Rahul MishraHaribhau Paithankar

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ACCOUNT

A Record in the general ledger that isused to collect and store similarinformation.

Example, a company will have a Cashaccount in which every transactioninvolving cash is recorded.

A company selling merchandise on creditwill record these sales in a Sales accountand in an Accounts Receivable account

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Two main forms of accountinginformation

Financial Accounts - Financial

accounts are concerned withclassifying, measuring and recordingthe transactions of a business.

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Financial Accounting

Financial accounting: Specializedbranch of accounting that keepstrack of a company's financialtransactions.

Using standardized guidelines,transactions are recorded,

summarized & presented in afinancial report such as an incomestatement or a balance sheet.

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The process of summarizing financial

data taken from an organization'saccounting record and publishing in the

form of annual reports for outsiders.

Financial accountancy is governed by

both local and international accountingstandards.

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Generally Accepted

Accounting Principles(GAAP)

GAAP : Based on the fundamentalprinciples of accounting-conceptssuch as cost principle, matching

principle, full disclosure, goingconcern, economic entity, relevance,and reliability.

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Four Types of FinancialStatements

1. Income statement

2. Balance sheet

3. Statement of cash flows

4. Statement of stockholders' equity

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Income Statement

Reports a company's profitability during aspecified period of time(could be one year,one month, three months, 13 weeks)

Shows the results of operating duringthose accounting periods

Also prepared using the Generally

Accepted Accounting Principles (GAAP)

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Main components of Incomestatement

Revenues: include such things assales, service revenues, and interestrevenue.

Expenses: include the cost of goodssold, operating expenses (such as

salaries, rent, utilities, advertising)

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Gains: Measured by the proceeds fromthe sale minus the amount shown on thecompany's books.

Losses: result from the sale of an assetfor less than the amount shown on the

company's books.

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Profit and Loss Account

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

Also includes accruals too, which areincomes that will be realized only afterthe particular Profit and Loss Account

statement was prepared.

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Balance Sheets

Provide clear picture of the financialcondition of the company

Lists in detail the tangible and the

intangible goods that the companyowns or owes. The balance sheet is organized into

three parts1. Assets2. Liability3. Statement of Stockholders' Equity

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Assets

Include anything that the companyactually owns and has disposal over.

Examples : cash, lands, buildings,equipment, machinery, furniture, patentsand trademarks, and money owed bycertain individuals to the particularcompany.

Assets are classified into:

1. Current Assets

2. Fixed assets

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Current Assets

Include company can quickly monetise.

Eg: cash, government securities,marketable securities, accounts

receivable, notes receivable (otherthan from officers or employees)inventories, prepaid expenses

Which Could be converted into cashwithin one year in the normal course ofbusiness.

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Fixed Assets

long-term investments of the company.Eg: land, plant, equipment, machinery,leasehold improvements, furniture, anexpected useful for business in a numberof years or decades.

Usually accounted as expenses.

They are normally not for resale and are

recorded in the Balance Sheet at theirnet cost less of accumulateddepreciation.

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Other Assets Include intangible assets,

such as patents, copyrights, otherintellectual property, royalties, exclusivecontracts, and notes receivable fromofficers and employees.

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Liability

An obligation that legally binds anindividual or company to settle a debt,when one is liable for a debt, they areresponsible for paying.

Liabilities are money or goodsacquired from individuals, or other

corporate entities Examples: loans, sale of property,

services to the company on credit.

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Current Liabilities

This are accounts, and notes, taxespayable to financial institutions,

accrued expenses (e.g.: wages,salaries),

Current payment due should be within

one year.

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Long-Term Liabilities

This are mortgages, intermediate andlong-term loans, equipment loans, and

other payment obligation due to acreditor of the company.

Long-term liabilities are due to be paidin more than one year

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Statement of Cash Flows

Explains the change in a company's cashduring the time interval indicated in theheading of the statement.

Useful in the determination of thecompanys liquidity in a given period oftime.

The change is divided into three parts:

Operating activities Investing activities

Financing activities.

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Operating activities: explains how acompany's cash have changed due tooperations.

Investing activities: Refer to amountsspent or received in transactionsinvolving long-term assets.

Financing activities: Reports suchthings as cash received through theissue of long-term debt, or money spentto retire long-term liabilities.

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Shareholder's equity

(also called as net worth, or capital) is moneyor other forms of assets invested into thebusiness by the owner, or owners, to acquireassets and to start the business.

Any net profits that are not paid out in formof dividends to the owner, or owners, are alsoadded to the shareholders equity.

Losses during the operation are subtracted

from the shareholders equity.Assets are calculated the following way:

Assets=Liabilities + Net worth

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Statement of Stockholders' Equity

Lists the changes in stockholders'equity for the same period as theincome statement and the cash flow

statement. The changes will include items such

as net income, other comprehensiveincome, dividends, the repurchase

of common stock, and the exerciseof stock options.

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Conclusion

Financial statements are useful,because they show the financialcondition of a company at a given

period. There are many types of financial

statements uses and purposes,measuring different financial aspectsof the company.

They can be used for both internal-,and external uses

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Thank You..!

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Documents

Introduction to Financial Account