FACULTY OF BUSINESS AND

MANAGEMENT
[Prime college of business and management]

FINANCIAL ACCOUNTING NOTES

FOR CERTIFICATE AND DIPLOMA STUDENTS.
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 NOTES FOR FINANCIAL ACCOUNTING
INTRODUCTION
1. Accounting is a process of identifying and measuring quantitative financial
activities and communicates these financial reports to the decision-makers.
2. According to the American Institute of Certified Public Accountants [AICPA]; “Accounting is
the art of recording, classifying and summarizing in a significant manner and
terms of money, transactions and events, which are, in part at least, of a
financial character and interpreting the result thereof”.
3. According to the American Accounting Association [AAA]; “Accounting refers to the
process of identifying, measuring and communicating economic information
to permit informed judgments and decisions by users of the information”.
4. According to Weygandt, Kieso, and Kimmel; “Accounting is an information system that
identifies records and communicates the economic events of an organization
to interested users”.
5. Accounting is a systematic process of identifying recording measuring classifies
verifying some rising interpreter and communicating financial information. It
reveals profit or loss for a given period and the value and the nature of a firm’s
assets and liabilities and owners’ equity.

COMPONENTS OF BASIC ACCOUNTING

1. Recording: The primary function of accounting is to make records of all
transactions that the firm enters into. For the purpose of recording, the
accountant maintains a set of books.
2. Summarizing: Recording of transactions creates raw data. All transactions
at the end of the day are summarized according to the nature and time of
occurrence. For this reason, the accountant classifies data into categories.
3. Reporting: Management is answerable to the investors about the
company’s state of affairs. The operations that are being financed with the
money of owners, it needs to be periodically updated to them. For this
reason, there are periodic reports annually summarizing the performance
of all four quarters which are sent to them.
4. Analyzing: Lastly, accounting entails conducting an analysis of the result.
After results have been summarized and reported, a meaningful conclusion
needs to be drawn. Management must find out its positive and negative
points. Accounting helps in doing so by means of comparison.

BRANCHES OF ACCOUNTING
As a result of economic, industrial, and technological developments, different
specialized fields in accounting have emerged. The famous branches or types
of accounting include: financial accounting, managerial accounting, cost
accounting and are briefly discussed below:

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1. Financial accounting: Financial Accounting is based on a systematic method of
recording transactions of any business according to the accounting
principles. It is the original form of the accounting process. The main
purpose of financial accounting is to calculate the profit or loss of a
business during a period and to provide an accurate picture of the financial
position of the business as on a particular date. Financial accounting is
concerned with the preparation of periodic financial reports by using
historical data of a business enterprise.
2. Management accounting: This branch of accounting provides information to
management for better administration of the business. It helps in making
important decisions and controlling of various activities of the business.
The management is able to take decisions efficiently with the help of
various Management Information Systems such as Budgets, Projected
Cash Flow, Variance Analysis reports, Cost-Volume-Profit Analysis reports,
Break-Even-Point calculation, etc.
3. Cost accounting: The cost accounting is concerned with categorizing,
tracing and collecting manufacturing costs of a business enterprise. The
cost data collected so is used by management in planning and control. A
well established cost accounting system is essential for every business
enterprise to have a proper control over costs.

Others include the following

4. Tax accounting: Tax accounting deals with the tax related matters of a
business enterprise. It includes computation of taxable income and
presentation of financial or other information to tax authorities required by
tax laws and regulations of a country.
5. International accounting: Intentional accounting deals with the issues and
complications involved in doing trade in world or international markets.
Many companies have expanded their business internationally.
6. Government accounting: Government accounting is concerned with the
allocation and utilization of government budgets. It ensures that the
central or state government funds released for various purposes are being
utilized efficiently. The proper record keeping makes the audit of
completed projects possible.
7. Social accounting: Social accounting is concerned with analyzing and
evaluating organizational impact on society and its
environment. It measures the social costs and benefits of various
organizational activities. For example, accountants in this area might
analyze and evaluate the use of federal and state land or the use of
welfare funds in a large city. So social accounting is associated with
determining the social costs of the company and the social benefits it
contributed.
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8. Forensic accounting: Forensic accounting deals with legal issues faced by
business enterprises. Accountants in this area use their knowledge, skills
and techniques to deal with legal matters such as dispute resolution, claim
settlement, fraud investigation, court and litigation cases etc.
9. Fiduciary accounting: Fiduciary accounting refers to the management of
financial records by a person to whom the custody and management of
some property has been entrusted for the benefit of another person.
Estate accounting, trust accounting, and receivership are some examples
of fiduciary accounting.
10. Auditing: The term auditing generally refers to review, examination,
verification, evaluation or inspection of historical data, records or events
belonging to an entity. The person who performs the work of audit is
known as auditor. In accounting and business, there are two types of
auditing – external auditing and internal auditing.

BOOKKEEPING
We often use the terms accounting and bookkeeping interchangeably.
However, bookkeeping is actually just one part of the accounting process which
deals with the recording of the transactions. So let us learn about book-keeping
and its differences with accounting.
Book-Keeping Accounting
Accounting is the task of preparing
The art of recording of all financial financial statements with the help of
transactions supported by valid ledger balances and analyzing and
documents in a particular method interpreting the financial statements and
is called Bookkeeping. also communicating the information to the
users.
Accounting is the second or final stage of
the whole accounting process. In this stage
Bookkeeping is the primary stage financial statements are prepared with a
of the whole accounting process. view to finding out financial results and
In this stage, journalizing, exhibiting financial position and
recording and balancing are communicating the information to the
made. management and other interested parties
after necessary analysis and
interpretation.
Person or persons concerned with The person or persons concerned with the
bookkeeping are called bookkeeper final stage of accounting are called
or bookkeepers. accountant or accountants.
The task of bookkeeping is to The task of an accountant is to prepare,
record the transactions. So, in this present and communicate information. So,
aspect theoretical knowledge is in this aspect knowledge of application is
more important. more important.

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Employees who perform Accountants possess the status of high
bookkeeping tasks are considered officials. That is why in some cases the
as lower category employees in accountants enjoy the status of financial
the organization. advisers or directors.
All primary activities – Preparation of trial balance with the help of
identification, recording arid ledger account balances to prove the
posting of transactions are arithmetical accuracy of the ledger
included in bookkeeping. accounts and preparation of financial
Bookkeeping doesn’t require any Accounting, on the other side, requires
special skills as it is mechanical in special skills due to its analytical and
nature. somewhat complex nature.
Management cannot make Management can make decisions based on
decisions based on bookkeeping. accounting.
Financial statements are not Financial statements are prepared on the
prepared during bookkeeping. basis of records obtained through
bookkeeping.

OBJECTIVES OF ACCOUNTING
1. To keep Systematic Records: The main objective of accounting is to keep a
systematic record of financial transactions which helps the users to
understand the day to day transactions in a systematic manner so as to gain
knowledge about overall business.
2. Ascertain the Financial Position: The accounting also helps the businessman to
know about his financial position. This objective is served by the Balance
Sheet or Position Statement. The Balance Sheet is a statement of assets and
liabilities of the business on a particular date. It serves as a tool for
ascertaining the financial health of the business.
3. Decision Making: Accounting has yet another wider objective of helping the
managers and business owners in decision making. Systematic accounting
will be an essential factor for making business decisions and set realistic
goals for the targets and plans for future growth.
4. To ascertain profit or loss of the business: Business is run to earn profits. Whether
the business earned profit or incurred loss is ascertained by accounting by
preparing Profit & Loss Account or Income Statement. A comparison of
income and expenditure gives either profit or loss.
5. Planning: Organizations need to plan how they intend to allocate their
limited resources (e.g. cash, labor, materials, machinery and equipment)
towards competing needs in the future.
6. Control: One of the key objectives of an accounting system is to place
sufficient internal controls within an organization for the safeguarding of
its valuable resources. Assets of a business (e.g. cash, buildings, inventory,

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 etc.) are susceptible to losses arising from theft, fraud, error,
obsolescence, damage and mismanagement. Accounting ensures that
such risks are reduced to an acceptable level by placing various checks
across the organization.
7. Legal: Accounting is a legal requirement for most businesses. Law requires
businesses to maintain an accurate financial record of their transactions
and to report their financial results to shareholders, tax authorities and
regulators.
8. Liquidity: Mismanagement of cash is often the reason for failure in many
businesses. Accounting helps businesses in determining how much
cash and other liquid resources are at its disposal to pay for its financial
commitments. This information is necessary for working capital
management and helps organizations to reduce the risk of bankruptcy
through the timely detection of financial bottlenecks.
9. Protect Business Properties: Accounting provides protection to business
properties from unjustified and unwarranted use. Information about the
above matters helps the proprietor in assuring that the funds of the business
are not necessarily kept idle or underutilized.

LIMITATIONS OF ACCOUNTING
It is well established that accounting, especially financial accounting is of
absolute importance. Whether it is the management of the company or other
external stakeholders, they depend on these financial statements for their
dose of information about a firm’s financial transactions and position.
However, accounting is not a perfect science yet. Let us take a look at
some limitations of accounting.
1. Measurability: One of the biggest limitations of accounting is that it cannot
measure things/events that do not have a monetary value. If a certain
factor, no matter how important, cannot be expressed in money it finds no
place in accounting.
2. No Future Assessment: The financial statements show the financial position of
the firm on the date of preparation. The users of the statement are more
interested in the future of the company in the short term and long term.
However, accounting does not make any such estimates.
3. Historical Costs: Accounting often uses historical costs to measure the values.
This fails to take into consideration factors such as inflation, price changes,
etc. This skews the relevance of such accounting records and information.
4. Accounting Policies: There is no global standard in accounting policies. In
Uganda, we follow the Accounting Standards. Americans follow the GAAP
and then there are the international standards, namely the IFRS. And if a
global company operates in more than one country, there may be confusion.
Not all accounting policies follow the same line of thinking, and conflicts may
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 arise due to this. It has long been said that the whole world must agree on
uniform accounting policies but this has not happened yet.
5. Estimates: Sometimes in accounting estimation may be required as it is not
possible to establish exact amounts. But these estimates will depend on the
personal judgment of the accountant. And estimates are
extremely subjective in nature. They are basically a person’s guess of future
events.
6. Verifiability: An audit of the financial statements does not guarantee the
correctness of such statements. The auditor can only assure that the
statements are free from error to the best of his judgment.
7. Errors and Frauds: Accounting is done by humans, so there will always be the
scope of human errors. There is also the fear of possible manipulation of
accounts to cover up a fraud. Since fraud is deliberate, it is that much harder
to spot. This is one of the most dreaded limitations of accounting.

USERS OF ACCOUNTING INFORMATION

Accounting information of a business enterprise is used by many stakeholders.
Different parties use this information for different purposes depending on their
needs. Therefore, the accounting information system of a business enterprise
must be designed in a way that it should generate the reports to satisfy the
information needs of everyone interested party.
We can broadly divide the users of accounting information into two
groups – internal users and external users.
Internal users: Internal users are people within a business organization
who use financial information. Examples of internal users are owners,
managers, and employees. Internal users use a mix of management and
financial accounting information. Some internal users of accounting
information and their needs are briefly discussed below:
1. Management: Management uses accounting information for evaluating and
analyzing organization’s financial performance and position, to take
important decisions and appropriate actions to improve the business
performance in terms of profitability, financial position and cash flows. One
of the major roles of management is to set rules and procedures to
achieve organizational goals. For this purpose, management uses
information generated by financial as well as managerial accounting
system of the organization. They use it for:
 Budgeting, forecasting, analysis & take important financial decisions.
 Investment decisions, identification of warning and opportunity signals.
 Taking informed & evaluated decisions.
 Compliance with all statutory, regulatory, and any other external body.
2. Owners: Owners invest capital to start and run business with the primary
objective to earn profit. They need accurate financial information to know

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 what they have earned or lost during a particular period of time. On the
basis of this information they decide their future course of actions such as
expansion or contraction of business. They use it for:
 Tracking their investment and monitoring their return on investment.
 Observing their capital invested and evaluating its upward or downward move.
 Keeping an eye on the overall well-being of the business.
3. Employees: Employees who do not have a hand in core management of the
business are considered internal users of accounting information. They are
interested in financial information because their present and future is tied
up with the success or failure of the business. The success and profitability
of business ensures job security, better remuneration, job promotion and
retirement benefits. They use it for:
 Checking the overall financial health of the company as it affects their remuneration and job
security.
 Examining if the employer is depositing all required funds to the appropriate authorities such as the
provident fund
External users: External users normally use only financial accounting
information. External users are people outside the business entity
(organization) who use accounting information. Examples of external users
are suppliers, banks, customers, investors, potential investors, and tax
authorities. Some external users of accounting information and their
needs are briefly discussed below:
1. Investors: Normally investors provide capital and management runs the
business. The accounting information is used by both actual and potential
investors. Actual investors use this information to know how their funds
are used by the management and what is the expected performance of
business in future in terms of profitability and growth. They use it for:
 Checking how the management is utilizing the equity invested in the business
 Decisions related to an increase in investment or to divest from the business.
 Analyzing their present investment in the business or the overall financial health in case of a
potential investor.
2. Lenders: Lenders are individuals or financial institutions that normally
lend money to businesses and earn interest income on it. They need
accounting information to assess the financial performance and position
and to have a reasonable assurance that the business to whom they are
going to lend money would be able to return the principal amount as well
as pay interest there on. They use it for:
 Evaluation of short-term and long-term financial stability of a business.
 An insight into the liquidity, profitability, etc. with the help of ratio analysis
 Assessment of the creditworthiness with the help of financial ratios and scrutiny of the three main
financial statements in accounting.
3. Suppliers: Suppliers are business individuals or organizations that normally
sell merchandise or raw materials to other businesses on credit. They use
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 accounting information to have an idea about the future creditworthiness
of the business and to decide whether or not to continue providing goods
on credit. They use it for:
 Inspecting the credibility of their customers by evaluating their repayment ability.
 Setting up a credit limit & payment terms with their customers.
4. Government agencies: Government agencies use financial information of
businesses for the purpose of imposing taxes and regulations. They use it for:
 To keep a check and ensure that the firm is following all required accounting principles, standards,
rules & regulations.
 The ultimate intent is to protect business integrity & safeguard the investors.
 Tax department as one of the users of accounting
5. General public: General public also uses accounting information of business
organizations. For example, accounting information is:
 A source of education for students of accounting and finance.
 A source of valuable data for those researching on organizational impacts on individuals and
economy as a whole.
 A source of information for the people looking for job opportunities.
 A source of information about the future of a particular enterprise.
6. Customers: Accounting information provides important information to customers
about current position of a business organization and to make a judgment about
its future. Customers can be divided into three group’s manufactures or
producers at various stages of production, wholesalers and retailers and end
users or final consumers. They use it for:
 Checking the continuous inflow of stock and the pace of overall production.
 Assessing the financial position of its suppliers which is essential to maintain a stable source of
supply.
7. Researchers: The research scholars in their research in accounting theory as
well as business affairs and practices also use accounting data. In addition,
those with indirect concern about business enterprise include financial
analysts and advisors, financial press and reporting, trade associations,
labour unions, consumers, and public at large.
8. Auditors: External auditors examine the financial statements and the
underlying accounting record of businesses in order to form an audit
opinion. Investors and other stakeholders rely on the independent opinion
of external auditors on the accuracy of financial statements.

Qualitative Characteristics of Accounting Information

1. Comparability: Comparison is a very important part of financial information as
it helps the users of accounting information to differentiate, analyze,
improve, and take important decisions. The ability to do intra-firm
comparison (within the same company), inter-firm comparison (with
other companies), and market sector comparison (comparison within
the same market sector) makes accounting information easy to work with.

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 This implies the ability for users to be able to compare similar companies
in the same industry group and to make comparisons of performance over
time.
2. Understandability: The presentation of accounting information should be
simple and understandable for the users of the information. It is important
that all the data is clear and concise, it can be easily understood by
everyone including parties who are not from the accounting background.
All relevant explanatory notes should be provided along with the
financial statements. Method of valuation of inventory, method of
depreciation, information on reserves and surplus, contingent liabilities,
and any other extraordinary items. Example of Understandability – It
should be possible for bankers, investors, employees, etc. to understand
financial information of the business.
3. Reliability: One of the most important among qualitative characteristics of
accounting information is reliability of data, i.e. all information provided
must be traceable and verifiable with proper source documents. In
case of an internal or an external audit the information inside financial
statements should be confirmable back to its original source. Failure of an
audit may lead to disbelief in the company’s financial data. Example of
Reliability – An auditor must be able to verify a transaction back to its
origin with the help of invoices, memos, purchase order, sales order, etc.
4. Relevance: Relevance of accounting information means it should help the
user of information with their decision making process. The information
provided should not be irrelevant and unnecessary. All information
should be capable of monetary computation. Example of Relevance – A
firm is expected to provide the total amount owed by the debtors in the
balance sheet, whereas the total number of debtors is not important.

BASIC ACCOUNTING CONCEPTS AND CONVENTIONS

Basic Accounting Concepts, Conventions, Assumptions and Principles:
Accounting concepts, conventions, assumptions and principles
suggest logical and generally accepted accounting treatments and
principles. These concepts are not hard and fast rules and should be used as
general guidelines in applying and selecting appropriate accounting methods.
It is equally important that accounting users should have a basic
understanding of the accounting concepts to comprehend financial
statements. The accountants must have a thorough knowledge of these
conventions to ensure that accounting information is presented accurately
and consistently. Accounting practices should be developed in a way as are
consistent with the generally accepted conventions.
 Accounting concepts: Are a set of general conventions that can be used
as guidelines when dealing with accounting situations. These concepts
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 have also been integrated into the various accounting standards, so that a
user will not implement a standard and then find that it is in conflict with
one of the accounting concepts

 Accounting Standards (AS): Accounting Standards (AS) are basic policy

documents. Their main aim is to ensure transparency,
reliability, consistency, and comparability of the financial statements. They
do so by standardizing accounting policies and principles of a
nation/economy. So the transactions of all companies will be recorded in a
similar manner if they follow these accounting standards.
 Accounting Policies: Are the specific principles, conventions, rules, and
practices that an entity applies in preparing account’s statements.
Selection of accounting policies is a major goal for a company to establish.
For various purposes like transactions, sales management, etc. selection of
accounting policies is necessary.
 Accounting Principles: Accounting principles are essential rules and
concepts that govern the field of accounting, and guides the accounting
process should record, analyze, verify and report the financial position of
the business.

These include the following:

1. Business entity concept (convention, principle) of accounting entails that business is to
be treated as a self-contained entity. Business is different and distinct from
its owner or those who are concerned with business. Business entity
concept necessitates that owner’s personal transactions must be
segregated (separated) from business transactions”. The only time when
the owner’s transactions appear in the business records of when owner
gives anything to the business (capital), or takes anything out of the
business (drawings). For example, rent paid for business premises is
treated as business expenditure but payment of rent for owner’s house
out of business funds is treated as his drawings.
2. Going concern concept (convention, principle) defines and assumes that a business
intends to operate as a business unit for the foreseeable future and has
the ability to do so”. Financial statements especially balance sheets are
prepared on the assumption that the business will not close its operations
in the foreseeable future. The use of going concern concept
supports historical cost concept of accounting. Going concern is not
applied where there is definite evidence of the termination of business,
e.g., in case of business’ insolvency. In these circumstances the expected
exit values of the assets are more meaningful than their costs or book
values.
3. Accrual Concept: Accrual concept is the most fundamental principle of
accounting which requires recording revenues when they are earned and
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 not when they are received in cash, and recording expenses when they are
incurred and not when they are paid. GAAP allows preparation of financial
statements on accrual basis only (and not on cash basis). This is because
under accrual concept revenues and expenses are recorded in the period to
which they relate and not when they are received or paid.
4. Money Measurement Concept: This accounting concept states that only financial
transactions will find a place in accounting. So only those business activities
that can be expressed in monetary terms will be recorded in accounting. Any
other transaction, no matter how significant, will not find a place in the
financial accounts. So for example, if the company underwent a
major management overhaul this would have no effect on the accounting
records.
5. Accounting Period Concept: All the transactions are recorded in the books of
accounts on the assumption that profits on these transactions are to be
ascertained for a specified period. This is known as accounting period
concept. Thus, this concept requires that a balance sheet and profit and loss
account should be prepared at regular intervals. This is necessary for
different purposes like, calculation of profit, ascertaining financial position,
tax computation etc.
6. Cost Concept: This accounting concept states that all assets of the firm are
entered into the books of account at their purchase price (cost of acquisition
+ transport + installation etc). In the subsequent years to, the price remains
the same (minus depreciation charged). The market price of the asset is not
taken into consideration. Assets should be recorded at its cost less
accumulated depreciation.
7. Dual Aspect Concept: This concept is the basic principle of accounting; it is the
heart and soul. It basically is one of the golden rules of accounting – for
every credit; there must be a corresponding debit. So every transaction we
record must have a two-fold effect, i.e. it will be recorded in two places. This
is the core concept of the double-entry system of accounting. So let us see
an example of this in action. Say the business buys an asset worth shs
10,000/-. So now the Fixed Assets of the company will increase by shs
10,000/-. But at the same time, the bank or cash balance will reduce by shs
10,000/-.
This concept is based on the fact that if there is something given, someone
else receives it. It can also be said that every time a transaction takes place
there is always a two-sided effect. A transaction may affect either both sides
or only on one side of the Accounting Equation. Thus according to this
concept every transaction has two effects, one is debit and the other is
credit for the same amount.
8. Single Entry System: This system is also known as pure entry system. It does not
follow the traditional dual recording format. Instead, in a single entry
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 system, only a Cash Book will be maintained. All cash transactions will be
recorded in the Cash Book. No other Ledgers find a place in this system.
All transactions of personal nature are simply recorded in a rough book.
9. Realization Concept: According to the realization accounting concept, revenue is
only recognized when it is realized. Now revenue is the cash inflow for a
business arising from the sale of goods or services. And we assume this
revenue as realized only when it legally arises to be received. So in simpler
terms, the profit earned will be recorded when it is actually earned.
10. Matching Concept: This concept states that the revenue and the expenses of
a transaction should be included in the same accounting period. So to
determine the income of a period all the revenues and expenses (whether
paid or not) must be included. The matching accounting concept follows the
realization concept. First, the revenue is recognized and then we match the
costs associated with the revenue. So costs are matched with revenue, the
reverse would be an incorrect system.
11. Full Disclosure Concept: This concept states that all relevant information will
be disclosed in the accounting statements. A lot of external users depend on
these financial statements for their information to make investing decisions.
So no information/transactions etc of relevance to anyone of them will be
omitted from these statements for the benefit of the company.
12. Consistency Concept: Once the company decides on a certain accounting
policy it should not be frequently changed. Unless there is a statutory
requirement or it allows better representation of the accounts accounting
policies should be consistent for long periods of time. This allows users to
make inter-firm and inter-period comparisons. Also, frequent changes in
policies may be to manipulate the accounts and this must be prevented.
13. Conservatism Concept: This accounting concept promotes prudence in
accounting. It states that profit should not be included until it is realized.
However, losses even those not realized but with the remote possibility of
occurring should be included in the financial statements. So all losses are
recognized – those that have occurred or are even likely to occur. But only
realized profits are recognized.
14. Materiality Concept: Materiality states that all material facts must be a part of
the accounting process. But immaterial facts, i.e. insignificant information
should be left out. The materiality of a transaction will depend on its nature,
value and its significance to the external user. If the information can affect a
person’s investing decision then it is definitely a material fact.
15. Objectivity Concept: Finally, we come to the last accounting concept –
objectivity. This concept states the obvious assumption that the accounting
transaction recorded should be objective, i.e. free from any bias of the
person recording it. So each transaction should be verifiable by supporting
documents like vouchers, bills, letters, certificates, invoices etc.
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BASIS OF ACCOUNTING
This deals with the timing of the revenue recognition, i.e. when should the
revenue be recognized in the books of accounts. There are two approaches to
this dilemma – cash basis of accounting and accrual basis of accounting.
1. Cash Basis of Accounting: Under the cash system of accounting an income will
only be recorded when it comes in. So an income will be earned when it is
received in cash by the organization. And similarly, the expenses will also be
recorded only when they are actually made. So take for example the
organization pays the salary of its employees for the month of June on the
3rd of July2020. This salary expense will thus be recorded in July 2020,
although the expense is for the period of June 2020. Similarly, say the
organization made a credit sale on 5th August 2020. They received the
payment on 11th October 2020, so this sale will be recorded on this date.
2. Accrual Basis of Accounting: Accrual basis is the more logical and scientific
approach to accounting. This is the method most organizations chose to
adopt, as it gives a more fair representation of the financial position of the
company. In the accrual system, the revenues and expenses are recognized
in the time period in which they occur, not when the money actually comes
in. So the income will be recorded if it is earned irrespective of whether the
payment has come in or not. And the expense is recorded when it becomes
due, irrespective of whether it has been paid. So in accrual system, all
incomes and expenses – cash items and non-cash items (like
prepaid/outstanding expenses and accrued/advance income) will be taken
into account.

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