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Uploaded byIslam Ragab, CMA, CIA
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Finance for non finance professionals

This document provides an overview and outline of a finance course for non-finance professionals. The summary includes: - The course is aimed at professionals without financial backgrounds like doctors, engineers, and managers to teach them basic finance concepts. - The outline covers why financial education is important, definitions of accounting, the accounting equation, examples of accounting transactions, financial statements, and the three main financial decisions around investments, financing, and dividends. - Key concepts defined include assets, liabilities, revenues, expenses, accounting, the accounting equation, double-entry accounting, balance sheets, income statements, and the three main types of business entities.

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Finance for non-finance professionals NITI Finance unit Prepared & Presented by: Islam Ragab, CMA, CIA
Who need to attend this course. • All professionals ( Doctors, Engineers, etc.) • All managers and executives with non-financial background. Outlines. • Why we need to understand Finance. • What’s the meaning of Accounting. • Meaning of assets, Liabilities, Revenues, Expenses & owner’s equity. • Examples of Accounting recording (case study). • External Auditor report (Financial statements). • Accounting information users. • Types of business entities. • Financial Management main three decisions.
Why is Financial Education Necessary? • Climbing up the corporate ladder requires solid financial knowledge – even for non-financial managers. • Financial education gives managers the tools to make better decisions: when choosing between projects, planning a budget, making large purchases and so on.
What’s the meaning of Accounting? • Accounting: Is recording Historical events that contain monetary values Then summarizing and reporting them to provide useful information to Accounting information’s users.
What’s the meaning of the following? • Asset. • Liability. • Owner’s Equity. * All of the above are Balance sheet items.
What’s the meaning of the following? • Revenues. • Expense. * These tow items are Income statement items.
Economic Resources Claims to Economic Resources The Accounting Equation Assets = Liabilities + Owner’s Equity
Accounting Transactions Examples of events to be recorded : 1- Islam Ragab and Mohamed established ABC Retail company with a capital SAR1 MM shared equally between them on 01 Jan 2017. 2-ABC company purchased goods from XYZ company by SAR50,000 on account on 03 Jan 2017. 3- ABC paid SAR20,000 to XYZ on 10 Jan 2017. 4- ABC made credit sales to Successful Comp. by SAR80,000 on 15 Jan 2017. 5- ABC collected SAR60,000 from Successful comp. on 21 Feb 2017.
Double-Entry Accounting “ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. Scale or Balance Receive DEBIT Give CREDIT Left Side Right Side
Accounting Transactions Examples of events to be recorded : 1- Islam Ragab and Mohamed established ABC Retail company with a capital SAR1 MM shared equally between them on 01 Jan 2017. 2-ABC company purchased goods from XYZ company by SAR50,000 on account on 03 Jan 2017. 3- ABC paid SAR20,000 to XYZ on 10 Jan 2017. 4- ABC made credit sales to Successful Comp. by SAR80,000 on 05 Jan 2017. 5- ABC collected SAR60,000 from Successful comp. on 21 Feb 2017.
Double Entry System Debit Credit Cash 1,000,000 Capital Islam 500,000 Capital Mohamed 500,000 Total 1,000,000 1,000,000 Debit Credit Inventory 50,000 Payable to XYZ 50,000 Total 50,000 50,000 Debit Credit Payable to XYZ 20,000 Cash 20,000 Total 20,000 20,000 Debit Credit Cost of sales 50,000 Inventory 50,000 Total 50,000 50,000 Debit Credit A/R Successful 80,000 sales revenue 80,000 Total 80,000 80,000 Debit Credit Cash 60,000 A/R Successful 60,000 Total 60,000 60,000
Cash Accounts Payable Inventory Ledger Cash transactions liability accounts Inventory or purchases Subsidiary Books
Balance sheet (Statement of Financial position) • A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.
2017 Journal entries Debit Credit Cash 1,000,000 Capital Islam 500,000 Capital Mohamed 500,000 Total 1,000,000 1,000,000 Debit Credit Inventory 50,000 Payable to XYZ 50,000 Total 50,000 50,000 Debit Credit Payable to XYZ 20,000 Cash 20,000 Total 20,000 20,000 Debit Credit Cost of sales 50,000 Inventory 50,000 Total 50,000 50,000 Debit Credit A/R Successful 80,000 sales revenue 80,000 Total 80,000 80,000 Debit Credit Cash 60,000 A/R Successful 60,000 Total 60,000 60,000
ABC Company Statement of financial position ( Balance Sheet) As of 31 of December 2017 • Assets • Current Assets Cash 1,040,000 A/R 20,000 Inventory 0 • Non-current assets Land 0 Building 0 Total Assets 1,060,000 • Liabilities and Owner’s Equity • Liabilities Payable to XYZ 30,000 • Owner’s Equity Capital 1,000,000 Income of the year 30,000 Total Liabilities and Owner’s Equity 1,060,000
What is an Income Statement? • An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non- operating activities. It also shows the net profit or loss incurred over a specific accounting period.
ABC Company Statement of Profit or loss As of 31 of December 2017 • Revenues. Sales 80,000 • Expenses Cost of sales (50,000) • Net income 30,000
2017 Journal entries Debit Credit Cash 1,000,000 Capital Islam 500,000 Capital Mohamed 500,000 Total 1,000,000 1,000,000 Debit Credit Inventory 50,000 Payable to XYZ 50,000 Total 50,000 50,000 Debit Credit Payable to XYZ 20,000 Cash 20,000 Total 20,000 20,000 Debit Credit Cost of sales 50,000 Inventory 50,000 Total 50,000 50,000 Debit Credit A/R Successful 80,000 sales revenue 80,000 Total 80,000 80,000 Debit Credit Cash 60,000 A/R Successful 60,000 Total 60,000 60,000
• Cash from operating activities Cash inflows 60,000 Cash outflows (20,000) Net cash flows from operations 40,000 • Cash flows from investing activities 0 • Cash flows from financing Activities 1,000,000 • Net increase in cash and cash equivalents 1,040,000 • Cash and cash equivalents at the beginning of the year/period 0 • Cash and cash equivalents at the end of the year/period 1,040,000 ABC Company Statement of cash flows For the year ended December 31, 2017
EXTERNAL USERS Financial Accounting • investors • creditors • regulators • customers • competitors • owners • managers • employees INTERNAL USERS Financial Accounting Users of Accounting Information
Types of business entities • Sole proprietorship. • Partnership. • Corporations. - Holding ( Consolidated and stand alone FS ), subsidiaries ( stand alone FS only). Difference between Holding & subsidiary companies.
What is a Sole Proprietorship? • A sole proprietorship, also known as a sole trader or a proprietorship, is an unincorporated business with a single owner. • Easy to establish • Owned and operated by one individual • Owner faces unlimited liability with respect to his/her business
What is a Partnership? • Involves two or more owners • Details of each partners responsibilities are outlined in a partnership agreement Two Types of Partnerships • General Partnerships - partners face unlimited liability - partners are involved in the day-to-day operation of the business - partners are jointly liable for all the obligations of the partnership • Limited Partnerships - must have at least one general partner involved in business - limited partners cannot be involved in business operations - liability is limited to the amount invested in the partnership
What is a Corporation? • Corporations are owned by their stockholders (shareholders) who share in profits and losses generated through the firm's operations, a firm and its owners are limited in their liability to the creditors and other obligors only up to the resources of the firm, unless the owners give personal-guaranties. • Recognized as separate entities • Transfer of ownership is relatively easy • Shareholders exert influence over the corporation by electing board of directors
Financial Management Financial Management Mainly concerned with three major decisions as functions of finance. These are : The investment decision The financing decision The dividend decision
The Investment Decision The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad categories Long term assets (which yield return over a period of time in future.) –Capital Budgeting. Short term or current assets (convertible into cash usually within one year.) –Working Capital Management.
The Financing Decision • These decisions seek Optimal Capital Structure. a capital structure with a reasonable proportion of debt and equity capital.
The Dividend Decision The dividend should be analyzed in relation to the financing decision of the firm. Two alternatives are available in dealing with the profits of a firm:  They can be distributed to the shareholders in the form of the dividends They can be retained in the business itself ( Retained earnings).
Questions?
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