Accounting and Finance

Accounting and Finance

INTRODUCTION

•       Accounting Function: Gathering, processing, and reporting data. Preparation of a set of four financial statements

•       1- Balance sheet

•       2-Income statement

•       3-Statement of retained earnings

•       4-Statement of cash flow

Annual Report includes:

•       Financial highlights: include key figures such as sales, net income, and EPS.

•       Letter to stockholders from CEO: assessment of the firm performance and future plan.

•       Management Discussion & Analysis

•       Financial performance : Summary of financial ratios, Balance sheet, Income statement, Statement of retained earnings, Statement of cash flows

•       Members of the management team and board of directors
BALANCE SHEET

•       Provides a snapshot of a firm’s financial condition as of a particular date.

Major Components of the Balance Sheet:

•       Total assets =Current assets + Fixed assets

•       Total liabilities =Current liabilities + Long term liabilities

•       Total Stockholders’ equity = paid in Capital + paid in capital in excess of par + retained earnings – treasury stocks at cost.

Total assets = Total liabilities + Total Stockholders’ equity

Current Assets

•       Cash

•       Cash equivalents: T-bills, commercial paper etc.

•       Accounts receivable

•       Inventory: FIFO vs. LIFO. In inflationary setting firms use LIFO for tax purposes.

•       Prepaid expenses

•       Other current assets: for example, deferred income taxes

Deferred income tax

•      Deferred income tax asset happen when income reported to stockholders is less than the income reported to tax authority.

•   Deferred income tax liability happen when income reported to stockholders is more than the income reported to tax authority.

Fixed Assets:

•       Includes Property, plant, and equipment.

•       Depreciation is the technique applies to reduce the tax burden.

Intangible and Other Assets

•       Intangible: examples: Trademarks, Patents, Goodwill.

•       Other Assets: Long-term assets that do not fit into other categories

Liabilities

•       Current liabilities: includes Accounts payable, Short term Notes payable, Accrued liabilities and current portion due from long term debt.

•       Long-term liabilities: includes long term bank loan, Mortgage bonds, Debentures, pension liabilities, and deferred taxes owed to the government.

Total Stockholders’ equity

•      Paid in Capital: Preferred and Common stocks at par value

•      Paid in capital in excess of par

•       retained earnings: Income retained to the business

•      Less: Treasury stocks at cost: Purchase of a company’s own shares

•      Book Values Vs. Market Values

•      Profits versus Cash Flow

INCOME STATEMENT

•      Single Step Income Statement

•      Multiple Step Income Statement

STATEMENT OF CASH FLOWS

•      Cash flows from Operating Activities

•      Cash flows from Investing Activities

•      Cash flows from financing Activities