Accounting Introduction

Contents
Introduction......................................................................................................................................3

Why your Business needs Financial Accounting............................................................................3

Basic Structure of Accounting.........................................................................................................4

Balance Sheet...................................................................................................................................4

Income Statement, Profit and Loss Account...................................................................................4

Cash Flow Statement.......................................................................................................................4

Introduction
This introduction to financial accounting is meant to introduce financial accounting topics to
beginners. Students learning a business administration subject in a university can also benefit
from this introduction to financial accounting. First, let us clear the question, what financial
accounting is all about. Well, financial accounting is about the chronological and systematic
recording of all business transactions that occur in a firm. Chronological recording means that all
transactions are ordered by period and time, while systematic recording means that there are
accounting categories and rules to be observed.

Why your Business needs Financial Accounting

Secondly, for which reasons do we carry out financial accounting in Business Administration?

Self-information: As a business owner, manager, or employee, we want to be informed about

our company's performance and status. Let us begin with the fundamental strategic questions.
What is the total worth of your company's assets, equity, and liabilities? Is your company
profitable or losing money? Do you have adequate liquid assets to cover all liabilities owed to
creditors by your company? You will need to respond to these fundamental as well as additional
strategic concerns. The financial statement will be the starting point for all of your analyses.

Record of Evidence and Accountability: We should also think about the requirement to
actively produce proper proof of all of the firm's actions. That is, we may be held accountable for
the consequences if we provide evidence of business activity. Our Balance Sheet and Income
Statements demonstrate the effects of our company actions. Creditors, for example, may want to
know the company's value of Assets, Liquidity, Equity, Liabilities, Expenditure, and Sales,
among other things. By doing so, creditors can determine whether or not to continue doing
business with you.

Regulatory and transactional purposes: Governments may compel us to conduct a tax audit,
while other third parties (banks, business partners) may ask us to submit information during
specific transactions, for example, creditors may want to know whether we have securities to
cover the credit requested.

Basic Structure of Accounting

A more in-depth introduction to financial accounting examines the basic framework of
accounting. You will come across the term "double-entry accounting" while conducting
accounting. The word "double-entry" refers to financial accounting that is done as both a stock
record and an income record. On the one hand, you will create a Balance Sheet to keep track of
the stock valuation of assets, equity, and liabilities. On the other hand, an Income Statement will
include a record of outflows via spending and inflows through revenue (Profit and Loss
Account). However, that is not the end of financial accounting. A cash flow statement is required
to account for the flow of liquidity. Cash flow statements show the flow of liquidity into and out
of your firm throughout the short, medium, and long term.

Balance Sheet
A Balance Sheet shows the worth of a company's assets, equity, and liabilities as of a certain date
(point in time). As a result, the balance sheet only shows stocks as of a specified date, such as
"Balance Sheet as of 31.12.2020." The balance sheet is represented by a T-account with two
sides, left and right. The value of assets, both long-term and short-term, is shown on the balance
sheet's debit side (left). The credit side of a balance sheet (right) indicates the firm's equity as
well as long-, medium-, and short-term liabilities. In general, you will record the entrance and
departure of all assets and liabilities. The purpose of recording the value of assets and liabilities
is to allow you to assess the worth of equity in your company.
Income Statement, Profit and Loss Account
Now, revenue-generating activities such as goods sales and revenue-consuming activities such as
staff expenses have an impact on equity. This necessitates keeping track of both products and
services sold and expenses incurred. The net results are then summarized in the income
statement (or profit and loss account).

Cash Flow Statement

Finally, if you want to have an overview of the movement of liquidity in your company, you
must prepare a cash flow statement. The short-, medium-, and long-term liquidity cash-flows
may be shown. The short term is concerned with immediate inflows and outflows (daily, weekly
and monthly). The medium-run, on the other hand, detects a predicted flow of liquidity between
2 and 3 months. Finally, the long-term liquidity cash flow statement can be built for periods
longer than three months..