Reporter: Ian C.

Dagatan
WHAT IS
FINANCIAL
ACCOUNTING
?
WHAT IS FINANCIAL ACCOUNTING?

 Financial accounting is the

systematic procedure of recording,
classifying, summarizing, analyzing,
and reporting business transactions.
The primary objective is to reveal
the profits and losses of a business.
WHAT IS FINANCIAL ACCOUNTING?

 It provides a true and fair evaluation

of a business. It, therefore,
safeguards the interests of
stakeholders.
WHAT IS FINANCIAL ACCOUNTING?

 It also includes bookkeeping,

classification, and interpretation of
business transactions. The
profitability and financial position of
a firm are ascertained.
WHAT IS FINANCIAL ACCOUNTING?

 It represents revenue, expenses,

assets, liabilities, and equity in
respective financial statements, i.e.,
income statements, cash flow
statements, and balance sheets.
2 TYPES OF
FINANCIAL
ACCOUNTING
?
1. CASH ACCOUNTING

 This kind of financial accounting

considers cash transactions. Thus,
each transaction has a debit and
credit entry.
1. CASH ACCOUNTING

 Debit- is either the increase in assets

and expenses or the decrease in
liabilities and income.

 Credit- is either the increase in

liabilities and income or the
decrease in assets and expenses.
 1. CASH ACCOUNTING

 The transaction entered are only recorded

upon the receipt of the cash. There is no
clarity if there was any revenue or
expense generated in between. This is
applicable only in small businesses
where there is no requirement of any
statement, a few transactions are to be
recorded, it has limited fixed capital and
few employees.
2. ACCRUAL ACCOUNTING

 Most corporations prefer this method

to record cash and non-cash business
transactions
 This method emphasizes the
documentation of trades as and when
they occur, irrespective of monetary
exchange.
 2. ACCRUAL ACCOUNTING

 It works on two principles, revenue

recognition and matching revenue. It
records every transaction digitally. The
revenue earned but amount not received
will find its place in the asset account
whereas the expense occurred and cash
not paid cases will find their places in the
liabilities account.
FINANCIAL
STATEMENT
INCOME STATEMENT

 The purpose of the income statement

is to find the company’s net income
for the year. Accountants take all
accounting transactions (including
non-cash ones) and do a “revenue –
expense” analysis to determine the
year’s profit.
 BALANCE SHEET

 is based on the following equation –

 Assets = Liabilities + Shareholders’
Equity

 It states that a business entity

possesses and owes.
 SHAREHOLDER’S EQUITY STATEMENT

 It is a statement that includes

shareholders’ equity, retained
earnings, reserves, and other stock-
related items. It is an indicator of the
changes in the ownership interest of
the stakeholders.
CASH FLOW STATEMENT

 combines three statements – cash flow

from operating activities, cash flow
from financing activities, and the cash
flow from investing activities.
CASH FLOW STATEMENT

1. Cash flow from operating activities

 -is the first of the three parts of the cash
flow statement that shows the cash inflows
and outflows from core operating the
business in an accounting year; Operating
Activities include cash received from Sales,
cash expenses paid for direct costs as well
as payment is done for funding working
capital.
CASH FLOW STATEMENT

2. Cash flow from financing activities

 refers to the inflow and the outflow of cash
from the financing activities of the
company like change in capital from the
issuance of securities like equity shares,
preference shares, issuing debt, debentures,
and from the redemption of securities or
repayment of a long term or short term
debt, payment of dividend or interest on
securities.
CASH FLOW STATEMENT

3. Cash flow from investing activities

 refers to cash inflow and outflow of cash
from investing in assets (including
intangibles), purchasing of assets like
property, plant and equipment, shares,
debt, and from sale proceeds of assets or
disposal of shares/debt or redemption of
investments like a collection from loans
advanced or debt issued.
WHAT IS THE
IMPORTANCE
OF
FINANCIAL
ACCOUNTING
?
1. To track and analyze performances
and transactions of a business over a
period of time.

2. The transparency and reliability of

accounting is crucial in evaluating
management policies and creating
budgets.
3. It is used to compare reports so that
stakeholders and investors can decipher
and use the data to make better
decisions in the future.

4. It provides clarity in internal and

external communication regarding the
sources and destinations of finances in
the company.
SAMPLE OF INCOME STATEMENT
(NESTLE HOLDINGS, INC.)
 As we can see, the
company generated a
net profit of $3290
million in 2020, which
is more than three
times the net profit of
2019.
 SAMPLE OF BALANCE SHEET
(NESTLE HOLDINGS, INC.)

 The company assets,

liabilities, and equity
for the year 2020 were
recorded as follows:
 SAMPLE OF BALANCE SHEET
(NESTLE HOLDINGS, INC.)

 The company assets,

liabilities, and equity
for the year 2020 were
recorded as follows:
 Therefore, based on the data, we can infer the following:

 There was a rise in the company’s current and non-current assets in

2020, which led to total assets being valued at $54394 million.
 Similarly, the company’s current and non-current liabilities
increased. As a result, total liabilities rose to $32783 million.
 In 2020. the total shareholder’s equity rose from $18594 million in
2019 to $21611 million.
 SAMPLE OF CASH FLOW
STATEMENT
(NESTLE HOLDINGS, INC.)

 Now let us have a

look at Nestle’s CFS
for 2020:
 This financial statement signifies the following points:

 The cash flow generated from operations was comparatively less,

amounting to only $1783 million in 2020. In comparison, $2287
million was generated in 2019.
 Whereas Nestle’s cash flow from investing increased to $2127
million. This was due to the disposal of businesses.
 Financing represented a negative cash flow which amounted to
$3883 million in 2020. This was majorly a result of the loans given
to the parent and affiliates.
 However, the company had a positive balance of $350 million in
2020. This includes both cash and cash equivalents at the end of
2020. The balance amount was higher than the previous year.