Financial Accounting
Identifying - identifies the economic events relevant to its business
Recording - consists of keeping a systematic, chronological diary of events,
recorded in dollars or euro’s
Communicating - collected information is communicated to interested users by
means of accounting reports. The most common of these reports are called
financial statements
an organization’s economic events to interested users
Basic Accounting equation
ASSETS - Liabilities = Equity
If assets and liabilities go up and down the same = nom change in equity
Accounting in corporation
Owners wanna know what the managers do with their money
Economic events are recorded
external & internal transactions that affects what the company owns or owes
changes in the value of the firm and changes in how this value is invested in
assets and liabilities.
Transaction that affect equity
revenues and expenses
sale, fees, interest
salaries, utilities, materials etc.
the change in between the two is income
Transactions with owners
shareholders invest into the firm
buy shares
Shareholders can be paid by the firm
dividends
Financial Accounting 1
, Owner;s equity
1. Share capital - ordinary (paid in capital)
a. amount shareholders invested into the firm
2. Retained
a. Cumulative income from previous periods not (yet) paid out as dividend
Expanded accounting equation
Who uses accounting data?
Internal users
managers within the firm
External users
Investors
Creditors
Regulatory agencies
Customer
Labour unions]
Financial Accounting 2
, Financial accounting is subject to laws, regulations and standards
→generally accepted accounting principles (GAAP)
Benefit: Comparability! Each country has its own GAAP. There are also
international GAAP (e.g., IFRS)
Management accounting is not subject to laws, regulations and standards
In most countries, organizations are required by law to periodically publish specific
financial statements for outside users.
At least annually (in “annual reports”)
Assumptions and principles under IFRS
IFRS relies on
Monetary unit assumptions
companies include in the accounting records only transaction data that can
be expressed in money terms
Measurement principles
Economic entity assumption
activities of the entity be kept separate and distinct from the activities of its
owner and all other economic entities
When is the info useful
Financial Accounting 3
, Relevant
Predictive value
Confirmatory value
Material
Faithfully represented
Financial Statements
Income statement
disclose change in the value of equity - fiscal year
revenues & expenses
Net Income = Change in Assets - Change in Liabilities
Financial Accounting 4
Identifying - identifies the economic events relevant to its business
Recording - consists of keeping a systematic, chronological diary of events,
recorded in dollars or euro’s
Communicating - collected information is communicated to interested users by
means of accounting reports. The most common of these reports are called
financial statements
an organization’s economic events to interested users
Basic Accounting equation
ASSETS - Liabilities = Equity
If assets and liabilities go up and down the same = nom change in equity
Accounting in corporation
Owners wanna know what the managers do with their money
Economic events are recorded
external & internal transactions that affects what the company owns or owes
changes in the value of the firm and changes in how this value is invested in
assets and liabilities.
Transaction that affect equity
revenues and expenses
sale, fees, interest
salaries, utilities, materials etc.
the change in between the two is income
Transactions with owners
shareholders invest into the firm
buy shares
Shareholders can be paid by the firm
dividends
Financial Accounting 1
, Owner;s equity
1. Share capital - ordinary (paid in capital)
a. amount shareholders invested into the firm
2. Retained
a. Cumulative income from previous periods not (yet) paid out as dividend
Expanded accounting equation
Who uses accounting data?
Internal users
managers within the firm
External users
Investors
Creditors
Regulatory agencies
Customer
Labour unions]
Financial Accounting 2
, Financial accounting is subject to laws, regulations and standards
→generally accepted accounting principles (GAAP)
Benefit: Comparability! Each country has its own GAAP. There are also
international GAAP (e.g., IFRS)
Management accounting is not subject to laws, regulations and standards
In most countries, organizations are required by law to periodically publish specific
financial statements for outside users.
At least annually (in “annual reports”)
Assumptions and principles under IFRS
IFRS relies on
Monetary unit assumptions
companies include in the accounting records only transaction data that can
be expressed in money terms
Measurement principles
Economic entity assumption
activities of the entity be kept separate and distinct from the activities of its
owner and all other economic entities
When is the info useful
Financial Accounting 3
, Relevant
Predictive value
Confirmatory value
Material
Faithfully represented
Financial Statements
Income statement
disclose change in the value of equity - fiscal year
revenues & expenses
Net Income = Change in Assets - Change in Liabilities
Financial Accounting 4
