1. Financial accountancy (or financial accounting) is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders,,suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.
2. Accounting method: The technique used to report sales, expenses, and profits. Accounting methods include "cash basis" accountingand "accrual basis" accounting. Accounting Cycle: The sequence of six steps in the processing of financial transactions (from the time they occur to their inclusion in financial statements) pertaining to an accounting period.
These steps are: (1) analyzing the transactions as they occur, (2) recording them in the journals, (3) posting debits and credits from journal entries to the general ledger, (4) adjusting the assets with a trial balance, (5) preparing financial statements, and (6) closing the temporary account.
3. The basic accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debitsequal the total credits. It can be expressed as
Assets Liabilities + Capital
a=l+c
4. Suspense A/C: The account opened to rectify the previous year's one sided errors is called suspense account. Suspense account is opened for a temporarily period only. Suspense account shows no balance after rectification of all errors and it disappears automatically.
5. Accounts receivable turnover: A method used to determine a company's average collection period for receivables. The formula is net sales divided by average accounts receivable.
👉👉CONCEPTS IN FINANCIAL ACCOUNTING AND ANALYSIS👈👈
1. Accruals: Moneys accumulated but not yet due and payable. Examples include taxes and wages. (Accrue means to accumulate.)
2. Cash or Accrual Basis
accounting: A company will select one method or the other and apply it consistently.
3 Amortization: A process of cost
allocation; a process of gradually reducing the value of an intangible asset over time by allocating a cost of the asset to the accounting periods it benefits.
4. Double Entry Accounting: A method of recording accounting transactions to maintain the equality of the accounting equation.
5. Fiscal year: Any continuous 12 month accounting period used by a company as its accounting year.
6. Full Disclosure Requirement: This is a requirement that a company disclose all facts and information that are relevant to readers of financial statements including standard reports and schedules, including footnotes.
7. Consistency Principle: It states that companies must use the same accounting method from period to period, and that in the event that a company elects to change certain accounting methods, that fact along with an analysis of the impact of that accounting change must be reported on the financial statements in footnotes.
8. Going Concern: The accounting concept that an company will have a continuing existence for the foreseeable future. If the auditor has a questions about the viability of the company, that information will be reflected in its opinion letter.
FINANCIAL ACCOUNTING AND ANALYSIS
Accounting:
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 financial statements that summarize a large company's operations, financial position and cash flows over a particular period are a concise summary of hundreds of thousands of financial transactions it may have entered into over this period. Accounting is one of the key functions for almost any business; it may be handled by a bookkeeper and accountant at small firms or by sizable finance departments with dozens
of employees at larger companies.
Objectives of Accounting :
Objective of accounting may differ from business to business depending upon their specific requirements. However, the following are the general objectives of accounting
. i) To keeping systematic record: It is very difficult to remember all the business transactions that take place. Accounting serves this purpose of record keeping by promptly recording all the business transactions in the books of account
. ii) To ascertain the results of the operation: Accounting helps in ascertaining result i.e., profit earned or loss suffered in business during a particular period. For this purpose, a business entity prepares either a Trading and Profit and Loss account or an Income and Expenditure account which shows the profit or loss of the business by matching the items of revenue and expenditure of the some
period.
iii) To ascertain the financial position of the business: In addition to profit, a businessman must know his financial position i.e., availability of cash, position of assets and liabilities etc. This helps the businessman to know his financial strength. Financial statements are barometers of health of a business entity.
iv) To portray the liquidity position: Financial reporting should provide information about how an enterprise obtains and spends cash, about its borrowing and repayment of borrowing, about its capital transactions,
cash dividends and other distributions of resources by the enterprise to owners and about other factors that may affect an enterprise's liquidity and solvency.
v) To protect business properties: Accounting provides upto date information about the various assets that the firm possesses and the liabilities the firm owes, so that nobody can claim a payment which is
