At completion of this eLearning course you will learn crucial, fundamental, must-have business knowledge and skills that you will be able to apply in your studies, your career or in launching and managing your own business.
Learning Objectives: Contains a theoretical description of the fundamentals of accounting principles and recording procedures, double entry, the accounting equation and balance sheets, trial balances, income statements, cash flow statements for each typical transaction throughout the first four years of the activity of the firm.
This module comprises the following:
Ø Reasons to Prepare Financial Statements
Financial statements provide information about the economic performance of a company, which is of benefit to a wide range of users when making economic decisions. Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, income, expenses, and equity are directly related to an organisation’s economic success or lack of it.
Ø The Definition of Accounting
In order to start understanding accountancy, you have to know the basics. Away from the stereotypical complicated accounting learning procedures, what is accountancy to the average person, and why is it important?
In this section you will learn key accounting principles and concepts and apply them when preparing and interpreting the four essential financial statements: Income Statement, Balance Sheet, Cash Flow Statement and Changes in Equity Statement.
Ø Chart of Accounts and the General Ledger
The Chart of Accounts (COA) is an index of the accounts used by a firm to design an accounting system and the way it should work. It should be both functional and flexible. After the Chart of Accounts is defined the set of accounts become the General Ledger. All transactions are recorded in the accounts that form the General Ledger following the dual entry principle of accounting. The General Ledger becomes the core of the Accounting System.
Ø The Income Statement
The Income Statement, also referred as the Profit and Loss Statement (P&L), measures the difference between revenue (an increase in assets) and expenses (a decrease in assets) that has occurred during an accounting period. When revenues are greater than expenses then the company has made a profit. When revenues are less than expenses then the company has made a loss.
Ø The Balance Sheet
In this section you will learn about the accounting equation, the preparation of the Balance Sheet and its application to provide information on the financial position of the firm. In short, you will begin to understand the discipline and its usefulness towards the financial success of the business.
Ø The Cash Flow Statement
Here you are introduced to the preparation of the Cash Flow Statement and its value in providing insight into the generation of money by the trading activities of your firm.
The Cash Flow Statement describes how the business has generated and used cash during the accounting period, which is usually one year. It can also be prepared at any other period, if needed by management.
A cash flow statement shows a company’s incoming and outgoing funds (sources and uses of cash) during a given time period (often monthly or quarterly).
The statement shows how changes in a balance sheet and income accounts affect cash and cash equivalents. It breaks the analysis down according to operating, investing, and financing activities.
Ø The Statement of Changes in Equity
Here you are introduced to the preparation of the Statement of Changes in Equity and its use in providing insight into the changes in value of the investment by the Owners during the trading activities of the firm.
The Statement of Changes in Equity shows the effect of transactions that generate a profit or loss on the value of the Owner’s Equity. The capital of the Owner is reduced when payments are made for expenses, such as staff salaries, general costs and office maintenance.
Conversely, when the firm receives payments for goods or services sold at prices above their purchasing cost they will increase the capital of the owner.
Ø Interrelationship between the Four Financial Statements
The interrelationship between the four financial statements: Balance Sheet, Income Statement, Statement of Cash Flow and Statement of Changes of Equity shows how each transaction is entered simultaneously in these four statements.
The importance of the interrelationship between financial statements is how the four financial statements are interrelated, and as a group of statements, inform different and mutually associated aspects of the company’s financial standing in a comprehensive manner, namely, profits or losses, assets and liabilities, debtors and creditors, cash, inventory, debt and equity.