S FRA Session 1 2018

Overview of Financial Accounting and
Control
Accounting, Markets and Governance
Session: 1
FINANCIAL REPORTING AND ANALYSIS
"If you can't count it,
you can't manage it.“
Accounting is knowledge and finances are

what you do with that knowledge.
Financial Accounting
&
Management Accounting
COURSE DETAILS
•  Course Outline – FRA
FORMS OF BUSINESS
ORGANIZATION
•  Sole Proprietorship
•  Partnership
–  Indian Partnership Act
–  Unlimited liability
–  Limit of partners
•  Company
–  The Companies Act 2013
•  Limited Liability Partnership
–  Limited Liability Partnership Act 2008
–  No Limit of partners
–  Limited Liabilities
Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI
Learning (NS)
Accounting, Capital Market and
Corporate Governance
•  The lemons principle and the problem of
adverse selection
•  Signalling quality

Learning (NS)
What is Accounting
•  Accounting is the language of business
•  Who should know accounting?
•  Why accounting in MBA?
•  Accounting information and economic
decisions

Learning (NS)
USERS OF ACCOUNTING
INFORMATION
•  Investors
•  Lenders
•  Analysts and advisers
•  Managers
•  Employees and trade unions
•  Suppliers and trade financiers
•  Customers
•  Government and regulatory authorities
•  The public
Learning (NS)
Accounting Measurement
Assumptions
•  Reporting entity
•  Going concern
•  Historical cost
•  Periodicity
•  Money measurement

Learning (NS)
Generally Accepted Accounting
Principles and the Accounting
Environment
•  Accounting standards and policies
•  Converging IGAAP with IFRS
•  Principles or rules?

Learning (NS)
ACCOUNTING EQUATION
ASSETS Liabilities Equity
Profits
Owners’ Equity Revenue- Expenses
Retained Earnings Dividends

Lets try this…
•  Bought Furniture for cash
•  Received Amount due from customers

•  Bought car on credit

•  Paid Amount due to a suppliers
•  Cash withdrawn by the proprietor for

personal purposes
•  Received cash for services to be provided

next month.
Problem 2 [2-3, AHM]
•  Capital Stock was issued for $100,000 cash
•  Bonds Payable of $25,000 were refunded with
capital stock
•  Depreciation on plant and equipment equaled $
8500 for the year
•  Inventory Purchased for $15,900 cash
•  $9,400 worth inventory was purchased on credit
•  Inventory Costing $4,500 was sold for $7,200 on
credit
•  $3,500 in cash was received for mechandise sold on
credit
•  Dividends of $ 3,000 were declared
•  The declared dividends of $3,000 were paid
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
•  Statement of profit and loss
•  Statement of retained earnings
•  Balance sheet
•  Cash flow statement
•  Statement of retained earnings
•  How are the financial statements
interrelated?
•  Preview of financial statement analysis
Reporting Profitability:
The Income Statement
?
One of the first
questions any business
wants to know is
whether they are
making money or are
profitable.
These answers can be found in the

Income Statement.
Source: Financial ACCT: A South-Asian Perspective with Course Mate (Edition: 2nd), Norman Godwin | Wayne Alderman |
Debashis Sanyal (GAS),Cengage Learning
The Income Statement and Terms
An income statement reports a
company’s revenues and expenses.
Matching Principle – Expenses should be recorded in the
period resources are used to generate revenues
Revenue – An Expense – A
increase in decrease in
resources Terms resources
resul5ng from resul5ng from
the sale of the sale of
goods or goods or
services services
Revenue Recogni5on Principle – A revenue should be
recorded when a resource has been earned
Income Statement Example
Exhibit 1-1
Basic Structure of the Income
Statement
Revenues – Expenses = Net Income or Net Loss

Reported over a specific period, like for the
year ended March 31, 2017
Income before taxes,
The Multi-Step also called earnings
before income taxes
Income Statement and other similar

5tles, represents the
Gross profit, which profit that a company
is some5mes called generates when
gross margin, represents considering all
the profit that a revenues and
company generates expenses except for
when considering only income taxes.
the sales price and the
cost of the product sold.
When this provision for income taxes
is subtracted from income before
taxes, the final income measure, net
income, is determined.
AOer gross profit is reported, opera5ng expenses are listed.

Opera5ng expenses are the expenses that a company incurs during
normal opera5ons. Opera5ng profit represents the profit that a
company generates when considering both the cost of the inventory
and the normal expenses incurred to operate the business.
Income Subtotals
Gross Profit
Operating Profit
Income before taxes
Net Income
Reporting Financial Position:
The Balance Sheet
?
An important issue for
any business is its
current financial
position. What does
the business own?
What does it owe?
These answers can be found in the

Balance Sheet.
Basic Structure of the Balance Sheet
ACCOUNTING EQUATION
Assets = Liabili5es + Equity
Reported at a given 5me or date
Balance Sheet Example
Exhibit 1-2
The Classified Balance Sheet
A Classified groups together accounts of
similar nature and reports
Balance them in a few major
Sheet classifica5ons.
Asset •  Current assets

•  Long-term investments
categories •  Fixed assets
•  Intangible assets
•  Other assets
•  Current & Long-term
Liabili5es
•  Retained Earnings
Equity •  Contributed Capital
Balance Sheet Classifications
Items are grouped by category in the
balance sheet.
Current
Current Assets Liabilities (Paid
(Convert to Noncurrent Noncurrent
Assets with Cash in 1 Liabilities
Cash in 1 year year or less)
or less) (All other (All other
assets) liabilities)
ASSETS LIABILITIES
Reporting Equity: The
Statement of Retained Earnings
A statement of retained earnings shows
the change in a company’s retained
earnings over a specific period of 9me.
Basic Structure of the Statement of
Retained Earnings
Statement of Retained
Earnings Example
Exhibit 1-3
Linking the Income Statement and
the Balance Sheet
The
Statement of
Retained
Earnings links
the income
statement and
the balance
sheet.
Problem: 1[2-1, AHM]
•  If assets equal $95,000 and liabilities equal $40,000, then
owners’ equity equals
–  Owners’ Equity= $ 55,000
•  If assets equal $65,000 and owners’ equity $40,000, then
liabilities equal
–  Liabilities = $ 65,000
•  If current assets equal $25,000, liabilities equal $40,000,
and owners’ equity equals $55,000, the non-current assets
equal
–  Non-current assets= $70,000
•  If the current ratio is 2.2:1, current assets are $33,000, and
non-current assets equal $55,000, then owners’ equity is
–  Current Liabilities= $15,000; Owners’ equity= $73,000
•  What is the current ratio if non-current assets equal
$60,000, total assets equal $95,000, and owners’ equity
equals $70,000?
–  Current assets = $35,000; Liabilities= $ 25,000; Current Ratio=7:5
or 1.4
•  Capital Stock was issued for $100,000 cash
•  Bonds Payable of $25,000 were refunded with
capital stock
•  Depreciation on plant and equipment equaled $
8500 for the year
•  Inventory Purchased for $15,900 cash
•  $9,400 worth inventory was purchased on credit
•  Inventory Costing $4,500 was sold for $7,200 on
credit
•  $3,500 in cash was received for mechandise sold on
credit
•  Dividends of $ 3,000 were declared
•  The declared dividends of $3,000 were paid
Prepare a balance sheet as of June 30, for the J.L. Gregory Company, using the
following data:

S FRA Session 1 2018

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S FRA Session 1 2018

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Overview of Financial Accounting and

Accounting is knowledge and finances are

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Retained Earnings Dividends

•  Received Amount due from customers

•  Bought car on credit

•  Cash withdrawn by the proprietor for

•  Received cash for services to be provided

These answers can be found in the

Revenues – Expenses = Net Income or Net Loss

Income Statement and other similar

AOer gross proﬁt is reported, opera5ng expenses are listed.

Income before taxes

These answers can be found in the

Asset •  Current assets

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S FRA Session 1 2018

Uploaded by

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Copyright

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Share this document

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S FRA Session 1 2018

Uploaded by

Copyright:

Available Formats

Overview of Financial Accounting and

Accounting is knowledge and finances are

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Source: Financial Accounting: A Managerial Perspective by Narayanaswamy. R, PHI

Retained Earnings Dividends

• Received Amount due from customers

• Bought car on credit

• Cash withdrawn by the proprietor for

• Received cash for services to be provided

These answers can be found in the

Revenues – Expenses = Net Income or Net Loss

Income Statement and other similar

AOer gross proﬁt is reported, opera5ng expenses are listed.

Income before taxes

These answers can be found in the

Asset • Current assets

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•  Received Amount due from customers

•  Bought car on credit

•  Cash withdrawn by the proprietor for

•  Received cash for services to be provided

Asset •  Current assets