Introduction to financial accounting

1. UNIVERSITY OF MYSORE
POST-GRADUATION SATELLITE CENTRE,
CHAMARAJANAGAR.
MANAGEMENT ACCOUNTING
ASSIGNMENT ON
INTRODUCTION TO FINANCIAL ACCOUNTING
Presented by
ABHISHEK E

2. INTRODUCTION TO
FINANCIAL ACCOUNTING

3. MEANING
 Accounting is the language of business. Companies communicate their
performance to outsiders and evaluate the performance of their employees
using information generated by the accounting system. Learning the
language of accounting is essential for anyone that must make decisions
based on financial information.
 Accounting is a continual process of
1) Capturing financial data
2) Organizing it
3) Producing financial reports

4. DEFINITIONS
 The systematic and comprehensive recording of financial transactions
pertaining to a business. Accounting also refers to the process of summarizing,
analyzing and reporting these transactions.
 The process of recording, summarizing and reporting the myriad of
transactions from a business, so as to provide an accurate picture of its
financial position and performance. The primary objective of financial
accounting is the preparation of financial statements - including the balance
sheet, income statement and cash flow statement - that encapsulates the
company's operating performance over a particular period, and financial
position at a specific point in time. These statements - which are generally
prepared quarterly and annually, and in accordance with Generally Accepted
Accounting Principles (GAAP) - are aimed at external parties including
investors, creditors, regulators and tax authorities.
 The key difference between financial and managerial accounting is that
financial accounting is aimed at providing information to parties outside the
organization, whereas managerial accounting information is aimed at helping
managers within the organization make decisions.

5. ACCOUNTING TERMS
 ASSETS
Assets are valuable resources that are owned by a firm.
Something a business owns or controls (e.g. cash, inventory, plant and
machinery, etc.)
 LIABILITIES
Something a business owes to someone (e.g. creditors, bank loans,
etc.) The state of being legally responsible for something.
 EQUITY
What the business owes to its owners. This represents the amount
of capital that remains in the business after its assets are used to pay off its
outstanding liabilities. Equity therefore represents the difference between the
assets and liabilities.
Equity = Assets – Liabilities

6. THE BASIC ACCOUNTING EQUATION
 Both liabilities and owners' equity represent claims on the
assets of a business.
 Liabilities are claims by people external to the business.
 Owners' equity is a claim by the owners.

7. WHO USES FINANCIAL INFORMATION?
 Internal users - Managers use it to plan, organize and run a business.
 External users - are
- Investors
- Creditors
- Others
- Taxing authorities
- Regulatory agencies
- Customers
- Labor union
- Economic planners

8. FINANCIAL STATEMENTS
 A financial statement (or financial report) is a formal record of the financial
activities of a business, person, or other entity. Financial statements for
businesses usually include:
 Balance Sheet
 Income Statement
 Cash Flow Statement

9. FINANCIAL STATEMENTS
 Balance Sheet
A balance sheet, also referred to as a statement of financial
position, reports on a company's assets, liabilities, and ownership equity at a
given point in time.
The balance sheet is an expanded expression of the accounting
equation.
ie, Assets = Liabilities + Owners' Equity

10. FINANCIAL STATEMENTS
 Income Statement
Income Statement, also known as the Profit and Loss Statement,
reports the company's financial performance in terms of net profit or loss over
a specified period. Income Statement is composed of the following two
elements:
 Income : What the business has earned over a period (e.g. sales revenue,
dividend income, etc.)
 Expense : The cost incurred by the business over a period (e.g. salaries
and wages, depreciation, rental charges, etc.)
 Net profit or loss is arrived by deducting expenses from income.

11. FINANCIAL STATEMENTS
 Cash Flow Statement
A statement of cash flows reports on a company's cash flow activities,
particularly its operating, investing and financing activities. Cash Flow Statement,
presents the movement in cash and bank balances over a period. The movement
in cash flows is classified into the following segments:
 Operating Activities : Represents the cash flow from primary activities of a
business.
 Investing Activities : Represents cash flow from the purchase and sale of
assets other than inventories (e.g. purchase of a factory plant)
 Financing Activities : Represents cash flow generated or spent on raising and
repaying share capital and debt together with the payments of interest and
dividends.

12. Thank You