Scribd Logo
Upload

Welcome to Scribd!

  • 25 views

    Session 1: Accounting First Steps

    Uploaded by

    Atal Kishore Sharma
    The document discusses the role of accounting and provides information about key accounting concepts. It notes that an accountant's role is to record transactions consistently and report results in a standardized format, rather than forecast the future or value assets. It then explains the three main accounting statements - the balance sheet, income statement, and statement of cash flows. The balance sheet lists assets and liabilities, the income statement shows revenues, expenses and profits, and the statement of cash flows reports cash inflows and outflows. It emphasizes that accounting follows standards to allow for comparisons and ensure measurements are accurate.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Session 1: Accounting First Steps

    Uploaded by

    Atal Kishore Sharma
    25 views11 pages
    The document discusses the role of accounting and provides information about key accounting concepts. It notes that an accountant's role is to record transactions consistently and report results in a standardized format, rather than forecast the future or value assets. It then explains the three main accounting statements - the balance sheet, income statement, and statement of cash flows. The balance sheet lists assets and liabilities, the income statement shows revenues, expenses and profits, and the statement of cash flows reports cash inflows and outflows. It emphasizes that accounting follows standards to allow for comparisons and ensure measurements are accurate.

    Original Title

    session1

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses the role of accounting and provides information about key accounting concepts. It notes that an accountant's role is to record transactions consistently and report results in a standardized format, rather than forecast the future or value assets. It then explains the three main accounting statements - the balance sheet, income statement, and statement of cash flows. The balance sheet lists assets and liabilities, the income statement shows revenues, expenses and profits, and the statement of cash flows reports cash inflows and outflows. It emphasizes that accounting follows standards to allow for comparisons and ensure measurements are accurate.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    25 views11 pages

    Session 1: Accounting First Steps

    Uploaded by

    Atal Kishore Sharma
    The document discusses the role of accounting and provides information about key accounting concepts. It notes that an accountant's role is to record transactions consistently and report results in a standardized format, rather than forecast the future or value assets. It then explains the three main accounting statements - the balance sheet, income statement, and statement of cash flows. The balance sheet lists assets and liabilities, the income statement shows revenues, expenses and profits, and the statement of cash flows reports cash inflows and outflows. It emphasizes that accounting follows standards to allow for comparisons and ensure measurements are accurate.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 11

    SESSION 1: ACCOUNTING FIRST

    STEPS
    Accounting for Finance
    The Accountant’s Role

    o In my view (and many accountants will disagree), it is the


    role of accounting
    o To check transactions and operations, as they occur
    o To record them in a consistent manner
    o To report the results in standardized form
    o Much as accounting wants to makes itself more relevant
    and central to businesses, it is not the role of accounting:
    o Forecast the future, no matter how tempted.
    o Value assets or operations.
    o Bluntly put, an accountant is a historian, chronicling
    events that have already occurred, not predicting the
    future.

    2
    The Accounting Questions..

    ¨ What do you own? List out the assets that a business has
    invested in, and how much it spent on those investments
    and perhaps what these assets are worth today.
    ¨ What do you owe? Specify the contractual commitments
    that a business has to meet, to stay in business. Simply
    put, this should include all borrowings, but is not
    restricted to those.
    ¨ How much money did you make? Measure the
    profitability of the business, both with accounting
    judgments on expenses, and based upon cash in and
    cash out.

    3
    The Accounting Statements

    ! The balance sheet, which summarizes what a firm


    owns and owes at a point in time, as well as an
    estimate of what equity is worth (through
    accounting eyes).
    ! The income statement, which reports on how much
    a business earned in the period of analysis, while
    providing detail on revenues and expenses.
    ! The statement of cash flows, which reports on cash
    inflows and outflows to the firm during the period of
    analysis and allows for a measure of cash earnings
    (as opposed to accounting earnings) and cash flows.
    4
    1. Balance Sheet

    5
    2. Income Statement

    Item Explanation

    Start with Revenues Accountant's estimate of the revenues/sales generated by


    any transactions made the business during the period.

    Net out Cost of Goods Sold Expenses associated with producing products or services that
    represent top line sales
    To get Gross Profit Production profitability

    Includes selling, general and administrative and other


    Net out Other Operating Expenses
    expenses associated with operations, but not directly tied to
    producing goods and services
    To get Operating Profit Profitability of business

    Net out Financial Expenses Expenses associated with the use of non-equity capital,
    especially debt.
    To get Taxable Income Income for equity investors, prior to taxes
    Net out Taxes Taxes due on taxable income
    To get Net Income Income for equity investors, after taxes

    6
    3. Statement of Cash Flows

    7
    The Interconnections

    8
    The Accounting Standards

    q Accounting is a rule-driven process, and over time, those rules


    have been formalized, especially for publicly traded companies.
    This formalization is driven by two considerations:
    q Standardization, to allow for comparisons across companies
    q First principles, to ensure that earnings, asset value and cash flows
    measure what they are supposed to measure.
    q While accounting standards around the world remain different,
    they have converged (for the most part) around two standards:
    q GAAP (Generally Accepted Accounting Principles), representing rules
    developed by FASB (Financial Accounting Standards Board) to cover US
    financial reporting.
    q IFRS (International Financial Reporting Standards), representing rules
    developed by IASB (International Accounting Standards Board) for
    companies listed globally, followed by about 90 countries as of 2020.

    9
    The Bottom Line

    ¨ The raw material that we use to do financial analysis


    and valuation almost always takes the form of
    accounting statements.
    ¨ Consequently, it behooves us all to understand how
    accountants think (even if we disagree with them) in
    putting these statements together.
    ¨ The challenge is that accounting thinking keeps
    changing, as we move through time, and we have to
    understand those changes (both the what and the
    why), to keep up with them.

    11

    You might also like