Financial accountancy - is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company.Financial accountants produce financial statements based on Generally Accepted Accounting Principles (GAAP) of a respective country.Financial accounting serves following purposes:
- producing general purpose financial statements;
- provision of information used by management of a business entity for decision making, planning and performance evaluation;
- for meeting regulatory requirements.
Accounting - Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the FINANCIAL STATEMENTS.
Financial Statements - Presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS OF CASH FLOW, or any supporting statement that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended.
A balance sheet - a statement of the book value of all of the assets and liabilities (including equity) of a business or other organization or person at a particular date, such as the end of a "fiscal year."
A modern balance sheet usually has three parts: assets, liabilities and shareholders' equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as the 'net assets' or the 'net worth' of the company.
BALANCE SHEET
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Assets
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Fixed Assets
Delivery Van 6,000
Machinery 2,200
Total fixed assets 8,200
Current Assets
Bank Balance 1,400
Inventory 2,000
Accounts Receivable 2,500
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Total current assets 5,900
Total assets 14,100
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Liabilities and Equity
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Current Liability
Accounts Payable 400
Long-Term Liabilities
Loans Repayable 2,200
Total Liabilities 2,600
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NET ASSETS 11,500
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Shareholders' Equity
Share Capital 10,000
Retained profits 1,500
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TOTAL SHAREHOLDERS' EQUITY 11,500
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Income statements - a financial statement for companies that indicates how net revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line").
The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
INCOME STATEMENT
Sales income1900
Less: Cost of goods sold 1100
Gross profits 800
Less: Operating expenses
Selling expense 110
General and administrative expense 170
Depreciation expense 140
Total operating expense 420
Operating profits 380
Less: Interest expense 80
Net profits before taxes 300
Less: Taxes (rate = 40%) 120
Net profits after taxes 180
Less: Preferred stock dividends 12
Earnings available for common stockholders 168
Earnings per share (EPS) 1.68
Income statements, along with balance sheets, are the most basic elements required by potential lenders, such as banks, investors, and vendors. They will use the financial reporting contained there in to determine credit limits.
A cash flow statement - a financial statement that shows incoming and outgoing money during a particular period (often monthly or quarterly).
The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities.
People and groups interested in cash flow statements include:
- Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses;
- Potential lenders/creditors, who want a clear picture of a company's ability to repay;
- Potential investors who need to judge whether the company is financially sound;
- Potential employees or contractors who need to know whether the company will be able to afford compensation.
