1 Introduction To Corporate Accounting

INTRODUCTION TO
CORPORATE ACCOUNTING
FROM THE TABLE OF MOHZAM MALIK
The road map…
What is Accounting • Recording & Summarizing
• Purpose and Objectives

The Framework • Qualitative and Quantitative
Characteristics
Elements of Financial • Asset, Liability, Equity, Income &
Statements Expenses
Components of • 5 Components
Financial Statements
Important Concepts • The Building Blocks

What is Accounting?
• An Accounting system of business records & summarizes the financial
performance over a period of time
• Such information is crucial for decision making to various stakeholders
• Financial accounting is:
• Concerned with production of Financial statements for external users;
• Produced for public based on accounting standards
• Management accounting is:
• Customized and detailed for internal use;
• Presents information which may be useful to management;
Qualitative Characteristics
• Traits that make information provided in financial statements useful
• Fundamental and Enhancing Qualitative Characteristics (based on how they influence
usefulness of information)
• Fundamental Qualitative Characteristics (useful or not useful);
• Relevance
• Faithful representation
• Enhancing Qualitative Characteristics (distinguish more useful information from less
useful information)
• Comparability
• Verifiability
• Timeliness
• Understandability
Elements of Financial Statements
• Asset
• Present economic resource controlled by the entity as a result of past events
• Liability
• An obligation of the entity to transfer an economic resource as a result of past
event
• Equity
• The residual interest in assets after deducting all liabilities.
• Total assets – total liabilities = equity
• Income
• Increase in assets or decrease in liabilities that results in equity
• Sales revenue or increase in value of assets
• Expense
• Decrease in asset or increase in liability that results in decrease in equity
Current and Non current assets
• Non Current Assets (Fixed Assets)
• Not held for resale in normal course for trading
• Not expected to be realized within 12 months after reporting period
• Acquired on a long term basis to be used in providing services to the business
• Example plant and machinery, land and building, motor vehicles
• Current Assets
• Realized, sold or consumed within normal operating cycle, or;
• Realized within 12 months after reporting period, or;
• Held primarily for trading
• Example Inventory, receivable, cash
Current and Non current liabilities
• Current Liabilities
• Expected to be settled within normal operating cycle, or
• Held primarily for trading, or
• Is due to be settled within 12 months after the reporting period, or
• No unconditional to defer settlement for at least 12 months after reporting
period
• Example…payables, bank overdraft, short term loans
• Non Current Liabilities (Long term Liabilities)
• Have not been classified as current, or
• Payment can be deferred unconditionally for more than 12 months after the
reporting period.
• Example…loan
Set of financial statements
• The Statement of Financial Position (Balance Sheet)
• Summarizes the position of assets liabilities and equity balance at the end of
reporting period (a snap shot) i.e. Financial Position at 30 June, 20X7
• Statement of Profit or Loss and other comprehensive Income
• Summarizes the revenue earned and expenses incurred by the business throughout the reporting
period i.e. financial performance
• Has 2 parts
• Net profit or loss
• Other comprehensive Income
• Adding both will arrive total
Comprehensive income
• The Statement of Changes in Equity
• Summarizes movement in equity balances from the beginning to the end
of reporting period
• The Statement of Cash Flows
• Summarizes cash paid and received throughout the reporting period .
• The Notes to the financial statement
• Also known notes to financial statements, footnotes, notes to accounts are
supporting information that is usually provided along with a company’s financial
statements.
• Many such notes are required to be provided by law, including details related to
provisions, reserves, depreciation, investments, inventory, share capital,
employee benefits, contingencies, etc.
• The Notes to the financial statement sample from Walmart Inc. as on 31 st January, 2018
Important Concepts
• Materiality
• If the omission or misstatement of an item is likely to impact the perception or
understanding of the users of that information, such an item is said to be
material.
• Is an subjective assessment made by those who prepare the financial
statements
• Substance over form
• The information must reflect economic reality not just the legal form
• At certain times the ‘legal form’' of a transaction may not provide its true
image, for example redeemable preferred shares are shares yet treated as
debt
• The going concern assumption
• Financial statements are prepared on the assumption that the entity will continue to
operate for the foreseeable future.
• Foreseeable future is presumed to be a period of 12 months from the organization's
reporting date
Important Concepts
• Business Entity Concept
• The business and the owners are separate entities
• Financial statements relate only to the activities of the business
• Accrual basis of accounting
• Record transaction when revenue is earned and expenses are incurred rather
than when payment is received or made
• The method follows the matching principle, which says that revenues and
expenses should be recognized in the same period
• Prudence
• Exercise prudence when preparing financial statements
• A policy of anticipating possible future losses but not future gains
• Assets & income should not be overstated i.e. record them only when certain
• Liabilities & expenses should not be understated i.e. record them as long as they are
probable (The future event or events are likely to occur)
• To ensure financial statements are fairly stated
Important Concepts
• Consistency
• once you adopt an accounting principle or method, continue to follow it
consistently in future accounting periods so that the results reported from
period to period are comparable
• This allows the readers of the financial statements to make meaningful
comparisons between years
• Change only if there is a change in circumstances or a requirement of a new
IFRS standard

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INTRODUCTION TO

• Purpose and Objectives

Important Concepts • The Building Blocks

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