Financial accounting is a business discipline which consists of a series of techniques and procedures that are used to identify, measure, record and communicate information, including financial information, about an organisation to a range of people who may be interested in it.
In what ways does mangement accounting differ from financial accounting?
Structure (a/c equation)
Sources (transactional/ varied)
Format (monetary / non-monetary financial information)
Time periods (historical / forcasts)
Legal requirement to publish accounts
access to management accounting information
Who uses financial information?
Directors & managers
Creditors & lenders
Define shareholders' equity
...the stake shareholders have in a company.
Calculating total value of assests less total value of liabilities
Define capital and regulatory capital
Capital: the sum of the equity and long term debt used to finance the business
Regulatory capital: the sum of the equity and long term debt that is classified as regulatory capital
What is a creditor?
...any individual / organisation to whom a debt is owed. Once the money is paid then the relevant accounting entries will be made to reflect the elimination of the liability and the reduction in cash available.
How is depreciation looked at on financial accounts?
...the cost of an assest will be apportioned over the financial period during which the business will benefit from the use of that assest.
Cost of asset - scrap or residual value The life of the assest
What is the accounting equation and what does it express?
The a/c equation express the relationship between the things owned by a business and the funds which were used to buy them.
Assets = Equity + Liabilities
Assests (current & non-current)
Current (in use for less than one year)
Stock > raw materials, WIP & finished goods
Non-current (in use for more than one year)
Goodwill and other intangible assets
Liabilities (Current & non-current)
Current (> 1yr)
Non-current (> 1yr)
Long term liabilities (other than current & non-current liabilities)
...money used to pay for day to day trading activities. Used to pay for wages, raw materials and other overheads
Current assests - current liabilities
(aka net current assests)
Non-current assests + working capital
What statutory notes are found on insurance companies income (P&L) statements