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Accounting Mba

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Financial accounting:

Define Accounting: accounting system collects financial information for an organization and report that information for decision makers.

The accounting equation:

Assets                =        Liabilities                +        Shareholders Equity[pic 2][pic 3][pic 4][pic 5]

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This equation for all kinds of companies servicing, merchandising & manufacturing

Briefly distinguish financial accounting from managerial accounting:

Financial accounting

Managerial accounting

Time frame

Periodic financial statements and related disclosures.

Monthly or Quarterly Or Annually  

Detailed plans and continued performance reports

Users

External users

Internal users

Example for users

Creditors, investors, suppliers & customers.

Managers.

Users:

What are the expectations of the investors when they acquire shares?

Investors                        Shareholders [pic 9]

Current                                                        Potential

  • Dividends to be received                        -        Part of profit distributed to shareholders                                                -        Share price to increase (Capital Gain)

What are the expectations of the banks when they grant a loan to a borrower?[pic 10][pic 11][pic 12]

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Creditors                        for Example: Banks [pic 31]

  • To get the periodic interest.
  • To get principal of the loan back.  

Important Notice:

Investors & creditors are the primary users of financial accounting information.

What is the useful information provided by financial accounting?

  1. Profitability information
  2. Financial position (Assets + Liabilities + Shareholders Equity)
  3. Cash Flows

Legal form for an organization:

  1. Sole proprietorship: Single owner.
  2. Partnership: Two partners or more. 
  3. Corporation: Owned by shareholders (stockholders or stakeholders). [pic 32]

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Major types of business organization:

Service business provides services for a price.

Merchandising business buys merchandises for reselling them again.

Manufacturing business acquire raw material which are processed for finish products.

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The four basic financial statements:

  1. Income statement, Operation statement or Earnings statement

Equation:        Net income = Revenue – Expenses

The non-operating revenue:

Depositing money in bank & receive interest.

  1. Interest revenue                 Non-operating Revenue[pic 53]

 Company owns building five floors, uses four floors and rented the fifth floor for 60,000 $.  

  1. Rent revenue                 Non-operating Revenue[pic 54]

Example 1:

Company X

Company Y

Money In Dollar

Percentage

Money In Dollar

Percentage

Assets

20,000,000

100%

20,000,000

100%

Liabilities

16,000.000

80%

7,000,000

35%

Shareholders' Equity

4,000,000

20%

13,000,000

65%

Shareholders Equity         =        Assets        -        Liabilities

[pic 55]

How do we prepare financial statements?

Financial statements are prepared using a set of accepted methods and procedures called Generally Accepted Accounting Principles (GAAP).

Example 2:

Company X Advertising during 2014

Provided services for                        1,500,000

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