Introduction to Financial Accounting

Information as an Accounting System

Kailashinie Thiranagama

Types of Businesses

Manufacturing Businesses
General Motors Intel Boeing Nike Coca-Cola Sony Cars,Trucks,Vans Computer Chips jet aircraft Athletic shoes and apparel Beverages Stereos and Television

They directly manufacture Products and Sells

Types of Businesses

Merchandising Businesses
Wal-mart Toys R us Circuit City Lands End Amazon.com -General Merchandise -Toys -Consumer Electronics -Apparel -Internet Books,Music

Its something like buying and selling

Types of Businesses

Service Businesses
Disney -Entertainment Delta Air Lines -Transportation Asiri Hospitals -Medical Services Merrill Lynch -Financial Advice Telecom -Telecommunication

They just only provide Services to their Customers

There are 3 types of ownerships

Proprietorship Partnership Corporation

A Proprietorship is owned by one individual

Advantages
Ease in Organizing Low cost of Organizing No taxation an entity level

Disadvantages
Limited Source of financial Resources Unlimited Liability No continuity of existence

A Partnership is owned by two or more individual

Advantages
More financial resources than a proprietorship Additional management skills

Disadvantages
Have to pay taxes @ entity Unlimited Liability No continuity of existence

A Corporation is organized under company law as a separate legal entity

Advantages
Ability to obtain large amounts of resources by issuing stocks Limited Liability Separate legal Entity

Disadvantages
Double Taxation

What is Accounting?
A language that provides information about the financial position of an organization Process of identifying, measuring and reporting financial information of an entity The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the informational -American Accounting Association

Branches of Accounting
Financial Accounting Cost Accounting Managerial Accounting Tax Accounting Auditing

Accounting Rules
Generally Accepted Accounting Principles (GAAP) Financial Accounting Standards Board (FASB)

Accounting Standards (AS)

Securities and Exchange Commission (SEC)

Integration of Accounting with each other disciplines in Business Management

Organization

Human Resource Management

Sales/Marketing/Distribution

Finance (Accounting)

Production / Operations

Procurement / Supply chain Management

Information Technology / IS Information Technology is dealing with all of these Procedures

The Environment of Accounting

Business Environment Regulatory Environment

Sole Trader
Partnerships Limited Liability

Society

Company law
CSE listing requirement Accounting Standards

Business Regulatory Environment Environment

Accounting
International Environment

Society
International Environment Internal Accounting Studies Globalization

Society

Users of Financial Statements

1. 2. 3. 4. Investers Loan Providers Employees The analyst-adviser group, including financial analysts and journalists, economists, statisticians, researchers, trade unions, Stockbrokers, and other providers of advisory services

5. The business contact group, including customers, trade creditors and suppliers and in a different sense, competitors, business rivals and those interested in mergers, amalgamations and takeover. 6. The Government, including tax authorities, departments and agencies concerned with the supervision of commerce and industry, and local authorities. 7. The public, including and other community and special interest group such as political parties, consumer and environmental protection societies and regional pressure groups.

Process of Financial Accounting

Source Documents Day Books / Journals Ledger (Accounts) Trail Balance Financial Statements : Trading & Profit &Loss A/C, Balance Sheet International of financial statements

Organizations Success
The primary questions about an organizations success that decision makers want to know are: 1. What is the financial picture of the organization on a given day? 2. How well did the organization do during a given period?

Understanding Financial Statements

Balance Sheet Income Statement Cash-Flow Statement

The Balance Sheet

Calendar Year

Statement of Financial Position

Fiscal Year

Assets

Liabilities

Owners Equity

The income Statement

Revenues (Cost of goods sold)

Gross Profit
(Administrator, S&D and Finance Expenses Net Profit

Cash-Flow Statement
Operations Investments Financing

Annual Report
Annual Report A document prepared by management and distributed to current and potential investors to inform them about the companys past performance and future prospects The annual report is one of the most common sources of financial information used by investors and managers.

Annual Concepts
Business Entity Money Measurement Going Concern Historical Cost Prudence / Conservatism Materiality Objectivity Consistency Accruals Uniformity Relevance