INTRODUCTION TO

ACCOUNTING

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 Learning Objectives:

1. The importance of Financial Accounting.

2. Financial Statements.
3. Financial Information Elements.
4. Financial Analysis.
5. Qualitative Characteristics of Financial Information.
6. Users of Financial Information.

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 Financial Accounting: Identification,
Measuring & Communicating financial
information.

- Science.
- Process.
- Art.

Assets = Liabilities + Shareholders’ Equity

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 Basic Financial Statements:
- Balance Sheet
- Income Statement
- Statement of Cash Flows

These statements show:

– Current financial status.

– Operating results for the period.
– Obtaining and using cash during the period.

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 Balance Sheet shows a summary of the financial
position of a company at a particular date. It
includes:

• Assets: cash, accounts receivable, inventory,

land, buildings, equipment and intangible
items.
• Liabilities: accounts payable, notes payable
and mortgages payable.
• Owners’ Equity: net assets after all obligations
have been satisfied.
Assets = Liabilities + Shareholders’ Equity
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 Income Statement shows the results of a
company’s operations over a period of time. It
includes:

• Goods were sold or services performed that

provided revenue for the company.
• Costs were incurred in normal operations to
generate these revenues.
• Gains and Losses and company profit.

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 Cash Flow Statement reports the amount of cash
collected and paid out by a company in operating,
investing and financing activities for a period of
time.

It consists of 3 types of activities:

• Operating activities.
• Financing activities.
• Investing activities.

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 Types of Financial Analysis:
Horizontal Analysis
Comparing a company’s financial condition and
performance across time.
Vertical Analysis
Comparing a company’s financial condition and
performance to a competitor.

Industry Analysis
Comparing a company’s financial condition with
industry index.
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 Owners Customers Competitors

Employees
Managers and their
representatives
Business

Lenders Government

Investment Community
Suppliers
analysts representatives

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 Qualitative Characteristics of Financial Information:

Relevance:
The ability of information to influence managers'
decisions. To be relevant, information should have
predictive value, confirm previous events and timeliness.

Reliability:
The extent to which users can depend on information. To
be reliable, information should be verifiable, neutral and
faithfully presented.

Consistency & Comparability

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 What Information Do Managers Need:

• Financial Information & Non-Financial (KPIs)

• Managers’ Behavior & Ethics

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