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    Accounting & Finance (Session-2)

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    Ibrahim Qari
    The three key financial statements are the balance sheet, income statement, and statement of cash flows. The balance sheet provides information on a company's assets, liabilities, and equity. The income statement reports revenues, expenses, and net income or loss over a period of time. The statement of cash flows shows the cash inflows and outflows from operating, investing, and financing activities during a period.

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    Accounting & Finance (Session-2)

    Uploaded by

    Ibrahim Qari
    11 views33 pages
    The three key financial statements are the balance sheet, income statement, and statement of cash flows. The balance sheet provides information on a company's assets, liabilities, and equity. The income statement reports revenues, expenses, and net income or loss over a period of time. The statement of cash flows shows the cash inflows and outflows from operating, investing, and financing activities during a period.

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    The three key financial statements are the balance sheet, income statement, and statement of cash flows. The balance sheet provides information on a company's assets, liabilities, and equity. The income statement reports revenues, expenses, and net income or loss over a period of time. The statement of cash flows shows the cash inflows and outflows from operating, investing, and financing activities during a period.

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    © All Rights Reserved
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    Download as pdf or txt
    11 views33 pages

    Accounting & Finance (Session-2)

    Uploaded by

    Ibrahim Qari
    The three key financial statements are the balance sheet, income statement, and statement of cash flows. The balance sheet provides information on a company's assets, liabilities, and equity. The income statement reports revenues, expenses, and net income or loss over a period of time. The statement of cash flows shows the cash inflows and outflows from operating, investing, and financing activities during a period.

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    of 33

    ACCOUNTING

    & FINANCE
    Course Learning Objectives
    MODULES
    • Get familiarized with the principles and concepts of accounting. Understating the
    components of financial statements. How to read a company’s financial
    Financial statements.
    Accounting

    • Get to know the components of a master budget and the classifications of costs.
    Managerial Understand the break-even point and the cost-volume-profit analysis.
    Accounting

    • Learn how to perform a comprehensive financial analysis using a variety of ratios.


    Be introduced to various tools and approaches used in corporate finance, the
    capital investment, the capital financing, and the dividends and return of capital.
    Finance

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    MODULE 1:
    FINANCIAL ACCOUNTING

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Session Objectives

    You should be able to:


    ▪ Explain the three key financial statements;

    ▪ The elements of a balance sheet and the logic behind the order of presentation;

    ▪ How current assets and liabilities are classified and defined;

    ▪ The elements of an income statement and the common formats;

    ▪ The various types of revenues and expenses that are reported on income statement;

    ▪ The three categories of cash flow reported on the statements of cash flows;

    ▪ The types of operating, investing, and financing activities on the statement of cash flows.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Let’s Recap

    • In business, there are three main “languages” – accounting, finance, and economics are related to
    decision-making process, while other functions are all part of execution process.

    • Accounting; how a business performed in the past. Finance; What will happen in the future?

    • Financial accounting; issuing financial statements to external uses. Managerial accounting;


    issuing internal reports to Internal users.

    • Accounting consists of three basic activities; identifying, recording, and communicating.

    • Users of financial information. Characteristics of Useful Information.

    • The building blocks of accounting: ethics, GAAP , and assumptions. Forms of businesses.

    • Accounting equation and the nine steps in the accounting cycle.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Financial Statements:
    What are the three key?

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Key Financial Statements

    • The financial statements are the output of an accounting system.


    Since financial statements are the principal communication means
    through which an organization reveals its financial position and the
    results of its activities, rules are in place to help assure that clear
    and complete messages are transmitted.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Key Financial Statements

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Key Financial Statements

    Basic Accounting Equation

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Key Financial Statements

    Expanded Accounting Equation

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    The balance sheet


    • Provides information about an organization’s assets (what is
    owned), liabilities what is owed, and equity (what is worth).
    • It is a key report for users of financial statements to review and
    analyze liquidity, solvency, financial flexibility, risk, and the
    sources of funds for the assets.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    Elements of the Balance Sheet

    Investment
    Cash

    PP&E
    Asset Accounts
    Receivable
    Accounts
    Notes
    Intangible assets
    Receivable
    Inventory

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    Elements of the Balance Sheet

    Accounts Notes
    Payable Payable

    Liability
    Accounts
    Accrued Salaries
    Liabilities Payable

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    Elements of the Balance Sheet

    + –
    Owner Owner
    capital withdrawal
    s
    Equity
    Accounts
    Pref. /common
    stock Retained earnings

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    Measurement Criteria
    • The general principle is historical cost.
    • NRV for cash and accounts receivables, is
    what they yield if you cashed them.
    • LCM for inventory, can lose value over time,
    if it is not a quick turnover.
    • Estimate must be made to of current market
    value and if it is less than the cost, the
    current market value will be listed on the
    balance sheet.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    Presentation Formats

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Balance Sheet

    US GAPP vs IFRS BS Presentation


    • US GAAP lists assets in decreasing
    order of liquidity (i.e. current assets
    before non-current assets), whereas
    • IFRS reports assets in increasing
    order of liquidity (i.e. non-current
    assets before current assets).

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Income Statement

    The income statement


    • The results of operations are reported in the income statement or
    the profit and loss (P&L) statement.
    • The income statement reports revenues and expenses that happen
    as a result of the normal operations and gains and losses from
    other activities.
    • Revenues recognized when they are realized (goods are shipped,
    services rendered, and expenses incurred).
    • Net income = Revenues – Expenses + Gains - Losses

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Income Statement

    Elements of an income statement

    Revenues
    Gains Income
    Statement
    Losses Expenses
    Net Income
    (or net loss)

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Income Statement

    Revenues
    • Revenue is the amount of money the company earned by selling
    products and services.
    Expenses
    • Expenses are the costs a company incurs for doing business in a
    specific period, including the cost of materials, supplies, utilities.
    Cost of goods sold (COGS)
    • Total amount of money spent to buy or make the products or
    services the company sells.
    Gross Profit
    • Total earnings for the company before expenses.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Income Statement

    Selling, General, and Administrative Expenses


    • SG&A make up a company’s operational expenses the company.
    G&A expenses include legal fees, salaries, insurance, utility, etc.
    Selling expenses include sales commissions, travelling, sales rep.
    salaries, advertising, etc.
    EBITDA
    • Earnings before interest, taxes, depreciation and amortization is a
    yardstick of the company’s operational health and is used as an
    indicator of the company’s earning potential. It evaluates the
    company’s performance without factoring in financing and
    accounting decisions or tax environments.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Income Statement

    Gains and Losses


    • Gains can result from selling of PP&E, or gains from investment
    in stocks and bonds and other financial assets.
    • Losses can results from a sale of PP&E, investments and losses
    from lawsuits.
    Net Profit/Loss
    • This end-result is used to determine the company’s
    earnings/losses per share by dividing the net income by the total
    number of shares.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Income Statement

    Income Statement Format


    Single-Step Income Statement Multiple-Step Income Statement

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Income Statement

    Measurement Criteria
    • GAAP require the disclosure of earnings per
    share (EPS) on the income statement of all
    publicly held companies.
    • EPS = (Net income – Preferred stock dividends)
    / Weighted average number of common shares.
    • Preferred stock is a class of ownership in a
    corporation that has a higher claim on the assets
    and earnings than common stock.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Statement of Cash Flows

    The statement of cash flows


    • The primary purpose of a statement of cash flows is to provide
    information about the cash receipts and cash payments of a
    company during a period
    • The statement of cash reports the cash effects of
    flows following: the
    o Operating activities
    o Investing activities
    o Financing activities

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Statement of Cash Flows

    Classification of Cash Flows


    Operating Activities:
    • Cash received (inflows) from
    o sale of goods or services
    o interest received and dividends
    received
    • Cash payments (outflows) to
    o suppliers for inventory
    o employees for wages
    o government for taxes
    o lenders for interest
    o others for expenses

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Statement of Cash Flows

    The difference between profit and cash


    • The accrual concept recognizes revenues and costs as a business earns or incurs them, not as it
    receives or pays money. It includes them in the relevant period’s income statement, and as far as
    possible matches them with each other.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Statement of Cash Flows

    Classification of Cash Flows


    Investing Activities:
    • Cash received (inflows) from
    o sale of property, plant, and equipment
    o sale of investments in debt or equity securities
    o collection of principal on loans to other
    entities
    • Cash payments (outflows) to
    o purchase property, plant, and equipment
    o purchase investments in debt or equity securities
    o make loans to other entities

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Statement of Cash Flows

    Classification of Cash Flows


    Financing Activities:
    • Cash received (inflows) from
    o sale of common stock
    o issuance of debt (bonds and notes)
    • Cash payments (outflows) to
    o stockholders as dividends
    o redeem long-term debt or reacquire capital stock (treasury stock)

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Statement of Cash Flows

    Example of statement of cash flows


    • Below is an example from Amazon’s 2017
    annual report, which breaks down the cash
    flow generated from operations, investing,
    and financing activities.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    The Statement of Cash Flows

    Direct Method vs Indirect Method of Presentation


    • In the direct method, all the cash transactions that are received or paid out and the total is the
    resulting cash flow.
    • In the indirect method, the accounting line items such as net income, depreciation, etc. are used to
    arrive at cash flow.

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO


    Thank
    ForYou
    Your Attention!
    Any Questions

    Ahmed Abdul Hameed, DBA, MBA, FMVA, CICA, CCGO

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