UNIT 03: INTRODUCTION TO MANAGERIAL FINANCE LESSON 01 UNIT - - PowerPoint PPT Presentation
UNIT 03: INTRODUCTION TO MANAGERIAL FINANCE LESSON 01 UNIT LEARNING OUTCOMES Understand the role of accounting within an organisation Be able to make decisions based on financial information Understand the basic concepts of
LESSON 01
Understand the role of accounting within an organisation
Be able to make decisions based on financial information
Understand the basic concepts of managerial accounting
Be able to prepare forecasts and budgets for small business
System for recording & reporting business transactions, in financial terms, to interested parties who use this information as the basis for:
Performance assessment
Decision making
Controlling
To record financial transactions: cash received and paid out goods bought and sold, items bought to use rather than to sell and so on.
To classify and summarize: to differentiate the profit/ (losses) generated by the business and to identify the amount of resources owned and owed by the business on a closing date of an accounting period.
To communicate information: to identify the financial strengths and weaknesses of the business.
Owners/shareholders/investors
Banks/Financial institutions
Government agencies: inland revenue
Management
Employees
Attributes that make the information useful to users.
Understandability
Relevance
Reliability
Comparability
Understandability: Accounting information must be readily understandable by its users.
Complete: Information should not be missing any key information
Clear: user friendly presentation method (charts & graphics)
Organized: the readers should be able to easily cross reference the financial information (notes)
Relevance: information must be relevant to the needs of the users: the information should influence the economic decisions of users.
Predictive value: Financial information could be used to base predictions, forecasts and projections and so on.
Feedback value: Financial information has a feedback value when it can confirm or correct previous expectations.
Timeliness: Financial reporting must be timely and current for the users to make decisions.
Reliability: Financial information should have the ability to verified and used consistently by users with the same results.
Free biasness/ neutrality
Verifiability: Multiple and independent measures will generate same results
Faithful representation: presenting information indicating what actually happened during a particular accounting period.
Comparability: Information that is prepared using the same measurement techniques and reported in a similar fashion is considered comparable information because this information is similar and can be judged side by side other similar financial information.
Accounting concepts are considered as the basic rules, assumptions or conventions adopted in preparation of accounts.
Business entity concept
Dual aspect concept
Money measurement concept
Going concern concept
Accounting period concept
Accruals concept
Business entity concept: Business entity concept implies that business is distinct and separate from its
Money measurement concept: All business transactions must be recorded in monetary terms to enable a common unit of measurement. Currency of the country.
Going concern concept: Business will continue to
Accounting period concept: Identifies the necessity of dividing the indefinite future time period into shorter periods for the purpose of financial statement preparation.
Assets: Resources used by a business to derive revenue in future.
Probable future economic benefits
Controlled by the business
Results of a past transaction
Assets Current assets Assets acquired with the intention of converting them into cash during the normal business
Trade receivables Cash/bank Inventory Noncurrent assets Assets acquired for relatively long periods for carrying on business Machinery Equipment Furniture Vehicles Property
Liabilities: Entity’s obligation to transfer economic benefits as a result of past transaction
Probable future economic sacrifice
Obliged to pay on demand
Result of a past transaction
Liabilities Current liabilities Liabilities which are payable within a year from the date of balance sheet Trade payables Bank overdraft Bills Short term loans Noncurrent liabilities Liabilities which do not become due for payment in one year Long term loans
Capital: A special kind of liability that exists in a business.
Residue interest of the owners.
Revenues: A company’s actual
resulting from a completed sale
satisfactory delivery of its services.
Expenses: Expenses are the benefits that are consumed or used up in the process of earning revenue.
Book keeping process is the recording of monetary transactions appropriately classified in the financial records of an entity, either by manual means or otherwise.
Event
Source document
Books of prime entry
Nominal ledger
Trial balance
GPFR
Statement of Financial Position
A statement of assets and liabilities of a business at a given moment in time.
Statement of Comprehensive Income
Statement indicating in detail how the profit (or loss) of a period has been made)
Statement of Changes in Equity
Statement summarizing the opening and closing positions of shareholder’s funds.
Statement of Cashflow
Statement recording the amount of cash and cash equivalents entering and leaving an organisation.