1.introduction to financial accounting
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Introduction to Financial
AccountingInformation as an Accounting System
Kailashinie Thiranagama
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Manufacturing Businesses
General Motors Cars,Trucks,Vans
Intel Computer Chips
Boeing jet aircraft
Nike Athletic shoes and apparel
Coca-Cola Beverages
Sony Stereos and Television
They directly manufacture Products and Sells
Types of Businesses
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Merchandising Businesses
Wal-mart -General Merchandise
Toys R us -Toys
Circuit City -Consumer Electronics
Lands End -Apparel
Amazon.com -Internet Books,Music
Its something like buying and selling
Types of Businesses
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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
Types of Businesses
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There are 3 types of ownerships
Proprietorship
Partnership Corporation
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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
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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
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A Corporation is organized under company law asa separate legal entity
Advantages
Ability to obtain large
amounts of resources byissuing stocks
Limited Liability
Separate legal Entity
Disadvantages
Double Taxation
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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 permitinformed judgments and decisions by users ofthe informational
-American Accounting Association
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Branches of Accounting
Financial Accounting
Cost Accounting
Managerial Accounting Tax Accounting
Auditing
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Accounting Rules
Generally AcceptedAccounting Principles
(GAAP)
Financial AccountingStandards Board
(FASB)
Accounting Standards
(AS)
Securities andExchange Commission
(SEC)
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The Environment of Accounting
Business Environment
Sole Trader
Partnerships
Limited Liability
Regulatory Environment
Company law
CSE listing requirement
Accounting Standards
International Environment
Internal Accounting Studies
Globalization
Accounting
Business
EnvironmentRegulatoryEnvironment
InternationalEnvironment
Society
Society Society
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Users of Financial Statements
1. Investers
2. Loan Providers
3. Employees4. The analyst-adviser group, including
financial analysts and journalists,
economists, statisticians, researchers,trade unions, Stockbrokers, and otherproviders of advisory services
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5. The business contact group, includingcustomers, trade creditors and suppliers and ina different sense, competitors, business rivalsand those interested in mergers,amalgamations and takeover.
6. The Government, including tax authorities,departments and agencies concerned with thesupervision of commerce and industry, andlocal authorities.
7. The public, including and other community andspecial interest group such as political parties,consumer and environmental protectionsocieties and regional pressure groups.
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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
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Organizations Success
The primary questions about anorganizations success that decision
makers want to know are:
1. What is the financial picture of theorganization on a given day?
2. How well did the organization doduring a given period?
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Understanding FinancialStatements
Balance Sheet
Income Statement Cash-Flow Statement
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The Balance Sheet
Statement of Financial PositionCalendar YearFiscal Year
Assets LiabilitiesOwners Equity
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The income Statement
Revenues
(Cost of goods sold)
Gross Profit
(Administrator, S&D and Finance Expenses
Net Profit
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Cash-Flow Statement
Operations
Investments
Financing
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Annual Report
Annual Report A document prepared bymanagement and distributed to currentand potential investors to inform them
about the companys past performanceand future prospects
The annual report is one of the most
common sources of financial informationused by investors and managers.
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Annual Concepts
Business Entity
Money Measurement
Going Concern
Historical Cost
Prudence / Conservatism
Materiality
Objectivity
Consistency
Accruals
Uniformity
Relevance
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