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Finance and value
Guiding principle of financial accounting
Provide useful financial information to outside decision makers
Finance and value
Double role of financial information
Finance and value
Role of accrual accounting
Incoming/Outgoing transactions booked independent of time of cash flow
Finance and value
Accounts of working capital requirement
WCR = Operating assets - operating liabilities
= Accounts receivable + Inventories + Prepaid expenses - Accounts payable - Accrued expenses
Finance and value
Most common accounts
Finance and value
Accounting equation
Assets = Liabilities + Owner‘s equity
Assets = Liabilities + Contributed capital + Beginning retained earnings + Revenue - Expenses - Dividends
Finance and value
Worksheet approach
Every transaction affects at least two accounts to keep the balance (double entry accounting)
Finance and value
Positive cash movement prior to accounting recognition
Deferred revenue ➔ Liability
Finance and value
Positive cash Movement after accounting recognition
Accrued revenue ➔ Asset
Finance and value
Negative cash movement prior to accounting
Deferred (Prepaid) expense ➔ Asset
Finance and value
Negative cash movement after accounting recognition
Accrued expense ➔ Libaility
Finance and value
Journal
Record transactions by date
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