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ACCOUNTING & FINANCIAL STATEMENTS - Coggle Diagram
ACCOUNTING & FINANCIAL STATEMENTS
1. OVERVIEW ABOUT ACCOUNTING
The process of identifying, measuring, recording, classifying, summarizing, analyzing, interpreting and communicating the financial transactions and events
Helps in keeping systematic records to ascertain financial performance and financial position of an entity
Accounts are classified as personal, real and nominal types
Transactions are first journalized, then posted to suitable ledger accounts, and all accounts are balanced at the end of the year
Process of accounting
Source Documents
Book of Original Entry
Ledger Accounts
Trial Balance
Final Accounts
2. BASIC ACCOUNTING PROCEDURES – JOURNAL ENTRIES
Double entry system is the only scientific system of accounting
Every transaction has two-fold aspects – debit and credit and both aspects are recorded
Advantages of Double Entry System
(i) Accuracy of accounting work can be established through trial balance
(ii) The profit earned or loss suffered during a period can be ascertained
(iii) The financial position of the firm can be ascertained through balance sheet
(iv) The system permits accounts to be kept in as much detail as necessary
(v) Results of one year can be compared with previous years and reasons for changes may be ascertained
Accounts
Financial records of an organization that register all financial transactions
Appraise the organization’s current financial position
Firms present their annual accounts in two main parts: the balance sheet and the income statement (profit and loss account)
3. KEY FINANCIAL STATEMENTS
Purpose: To provide systematic financial information on the company's position and performance over time
Four main statements
Balance Sheet
Income Statement
Cash Flow Statement
Statement of Shareholders' Equity
4. THE FIRST THREE FINANCIAL STATEMENTS
Balance Sheets
Shows Assets = Liabilities + Shareholders' Equity at a fixed point in time
Income Statements
Shows revenues and expenses over a period, to determine Net Profit/Loss
EPS (Earnings Per Share): Net Income / Number of outstanding shares
Cash Flow Statements
Reports the inflows and outflows of cash across three types of activities
Operating Activities
Investing Activities
Financing Activities