2. Accounting and Finance
Vocabulary
Liabilities: Obligations of the firm to outsiders or claims against its assets
by outsiders (debts of the firm).
Assets: Resources of the firm that are expected to increase or cause future
cash flows (everything the firm owns)
Owners’ Equity :The residual interest in, or remaining claims against, the
firm’s assets after deducting liabilities (rights of the owners)
Accounting : A process of identifying, recording, summarizing, and
reporting economic information to decision makers in the form of
financial statements.
Annual report : A document prepared by management and distributed to
current and potential investors to inform them about the company’s past
performance and future prospects.
3. Accounting and Finance
Accounting information is useful to anyone who
makes decisions that have economic results.
MANAGERS
OWNERS
INVESTORS
CREDITORS
GOVERNMENT REGULATORS
4. Accounting and Finance
The Balance Sheet
The balance sheet equation:
Assets = Liabilities + Owners’ Equity
or
Owners’ Equity = Assets - Liabilities
In Accounting , An Itemized Statement of What one
owns, What one owes, What one s worth is called a
Balance Sheet
7. Accounting and Finance
What is the need for Accounting & Finance in a Business:
Assess Monitor
Forecast Future
8. Accounting and Finance
Expense Tangible Financial Statements Balance Sheet profitable.
Intangible
For a business enterprise, all the relevant financial information is presented in a
structured format that is easy to understand. These are called ________ . There are
several important financial statements.
Managers want to know if a new product will be _____________
An outflow of cash or other valuable assets from a person or company to another person
or company is an ___________
In Accounting , An Itemized Statement of What one owns, What one owes, What one
s worth is called a _______________
________ assets are physical things , for example machines and property. ________
assets are not physical in nature, for example a company's reputation.
9. Accounting and Finance
Match the balance sheet items on the left to their definition on the right:
1. Accounts receivable
A. Borrowed money which the company must
pay back within a year.
2. Prepaid expenses
B. The money owed to a business by its clients
3. Account payable
C. Intangible assets like a company’s brand
name and established relationships with its
suppliers
4. Stock / Inventory
D. Costs paid in advance such as rent and
interest
5. Plant & Equipment
E. The money a company has received from
outside investors for its shares
6. Share capital
F. The money owed by a business to its
suppliers
7. Goodwill
G. The goods and materials that a business
holds for the purpose of resale
8. Short-term debt
H. What a company owns and uses to
produce goods, such as factory and
machinery.
Editor's Notes
Managers want to know if a new product will be profitable.
Owners want to know which employees are productive.
Investors want to know if a company is a good investment.
Creditors want to know if they should extend credit, how much to extend, and for how long.
Government regulators want to know if financial statements conform to requirements.
In business, revenue or turnover is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover.
In accounting, expense has a very specific meaning. It is an outflow of cash or other valuable assets from a person or company to another person or company. This outflow of cash is generally one side of a trade for products or services that have equal or better current or future value to the buyer than to the seller. Technically, an expense is an event in which an asset is used up or a liability is incurred. In terms of the accounting equation, expenses reduce owners' equity.
Assess current performance through financial statement analysis
Both insiders (such as managers, board of directors) and outsiders (such as suppliers, creditors, investors) use the statements to monitor and control the firm’s operations.
Forecast future performance.:Financial planning models are typically built using the financial statements
