1. ACCOUNTING CUE Team

2. Agenda 1. Accounting Basics 2. Bookkeeping 3. Accounting Principles 4. British English & American English 5. Depreciation 6. The Income Statement 7. The Balance Sheet 8. The Cash Flow Statement 9. Abbreviations

3. bookkeeping involves recording day- to day sales and purchases, and revenue received and payments made financial accounting involves preparing financial statements for external use by shareholders, creditors, etc. management accountants or managerial accountants provide information form internal use by company managers, about costs, prices, budgeting, etc. cost accounting involves determining the cost per unit manufactured, taking into account indirect expenses or overheads, tax accounting means calculating liabilities for tax, and usually trying to reduce them Accounting basics

4. Assets are resources owned by the company, that have future economic value Liabilities are amounts owed that will have to be paid in the future The basic accounting equation: assets= liabiblities + shareholder’s equity Double- entry bookkeeping means that for every debit there is an equal credit. This is sometimes referred to as the concept of duality. Depreciation means reducing the value of an asset over the length of its estimated useful life.

5. Accounting basics the balance sheet (UK) or statement of financial position( international terminology) reports all the assets,liabilities and shareholder’s equity on a particular date ( frozen picture), the income statement shows revenues and expenses for a period of time, net income/net profit ( or net loss) equals revenues minus expenses under the accrual basis of accounting revenues are reported when goods and services are delivered rather than when they cash is received and expenses are reported when they are incurred and not when they are paid the cash flow statement shows the cash generated and used during a period of time, divided into operating, investing, and financing activities

6. Bookkeeping bookkeeper= book-keeper=accounting clerk= accounts clerk Journals ( books of original entry) Ledgers ( book of accounts)- summarise each type of financial transactions. Business often have also a sales ledger, bought ledger and general ledger( nominal ledger) containing all the balance sheet accounts and income statement accounts. Chart of accounts is a list of all the accounts in general ledger. trial balance is a listing of the balances of all the accounts in the general ledger. At the end of an accounting period( usually a year) the totals of the accounts in the ledger are transferred to the company’s, financial statements: balance sheet, income statement and P&L, closing entries: Income statement accounts are permanent or real accounts- their balances carry forward to the next accounting year. Income statement accounts are temporary or nominal accounts which are closed at the end of the accounting year( closing entries are made setting all the revenue and expense balances at zero).

7. Bookkeeping Asset accounts are increased by being debited and decreased by being credited. They normally have debit balances. e.g.: accounts receivable, debtors, inventory Liability accounts, are increased by being credited and decreased by being debited. They normally have credit balances. E.g. :accounts payable, creditors, notes payable, interests payable Revenue accounts are generally credited( except perhaps in closing entries and adjusting entries, just before financial statements are issued). They normally have credit balances. Expense accounts are generally debited( except perhaps in closing entries and adjusting entries) and are increased by being debited. They normally have debit balances.

8. Accounting Principles accounting standards, GAAP, IFRS, IASB, the separate entity ( accounting entity, or economic entity) assumption: An enterprise is an accounting unit separate from its owners, and their personal transactions. the continuity/ going- concern assumption: The business will continue indefinitely into the future. the unit of measure assumption: All transactions are accounted for in a single monetary unit. periodicity or the time- period assumption: An ongoing business reports financial data for particular periods( years, quarters, months, etc.) the historical cost principle: Accounts record the initial price paid for assets, and these amounts aren’t changed when the assets’ market value change. the revenue or realisation principle: Revenue is realised at the moment when goods are sold or when services are provided, not when the payment is received.

9. Accounting Principles the matching principle: the revenues generated in an accounting period are identified with related costs whenever they were incurred, which is often before they are paid. the objectivity principle: All data recorded must be verifiable and free form bias. the consistency principle: The same methods( of inventory valuation, depreciation, etc.) must be used year after year. the full- disclosure principle: Financial reporting must include all significant information. the principle of materiality: Although all significant amounts have to be recorded according to accounting principles, small, unimportant ones do not. the principle of conservatism( or prudence): Where alternative accounting methods are possible, you choose the one with lower profit or lower asset amount.

10. British English: debtors or accounts receivable creditors or accounts payable balance sheet financial year overheads profit and loss account shareholder shareholders’ equity American English: accounts receivable accounts payable balance sheet/statement of financial position fiscal year overhead income statement/ statement of operations stockholder stockholders’ equity British English & American English

11. Depreciation depreciation = losing value of a fixed asset over time amortization = losing value of an intangible asset over time Depreciation methods: 1) straight-line method 2) accelerated depreciation asset’s cost – its accumulated depreciation = book value

12. The Income Statement THE INCOME STATEMENT = PROFIT AND LOSS ACCOUT = STATEMENT OF OPERATIONS It’s a financial statement that measures a company's financial performance over a specific accounting period Net income = Revenues - Expenses + Gains – Losses

14. Income earned from the principal activities of an entity The sum of expenses involved in producing and selling goods Revenue – COGS Income earned from activities that are not related to the entity’s main business Expenses incurred in delivering goods to customers Costs relating to the management and support functions within an organization Expenses on loans and debentures a tax that governments impose on financial income generated by all entities within their jurisdiction

15. The Balance Sheet The Balance Sheet = Statement of Financial Position It’s a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time The main formula behind balance sheets: assets = liabilities + shareholders’ equity

16. Assets

17. Current Assets A life span < 1 year cash and cash equivalents (CCE) – reports the value of a company's assets that are cash or can be quickly turned into cash accounts receivable (AR) – amounts of money owed by customers for goods or services sold on credit inventory – raw materials, work-in-process and a company’s stock of products waiting to be sold

18. Non-current Assets Also known as fixed assets A life span ≥ 1 year tangible assets - have physical existence (= things you CAN touch) intangible assets – things of value that CANNOT be physically touched, e.g.: brand names, copyrights, patents, trademarks, goodwill

19. Liabilities

20. Current Liabilities expected to be paid within a year of the date of the balance sheet accounts payable – amounts of money owed to suppliers for purchase made on credit accrued liabilities – expenses that have accumulated or built up during the accounting year, but will be paid after the date of the balance sheet

21. Non-current Liabilities Long-term liabilities are debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet

22. Shareholders’ Equity

23. the initial amount of money invested into a business includes: - the original share capital - share premium (= money made if the company sells shares at above their face) - retained earnings (= the part of company’s profits not distributed to stockholders) - reserves (= funds set aside from share capital and earnings, retained for emergencies or other future needs)

24. The cash flow statement( statement of cash flows/ funds flow statement/ source and application of funds statement) shows the flow of cash in and out of the business between balance sheet dates. It shows how effectively a company generates and manages cash and is divided into: 1.operations- day to day activities 2.investing- buying or selling PPE 3.financing- borrowing or issuing and repaying debt, or issuing shares and paying dividends

25. Abbreviations ABC = Activity-based Costing AGM = Annual General Meeting COGS = Cost of Goods Sold EBIT = Earnings Before Interest and Tax EBITDA = Earnings Before Interest, Tax and Depreciation and Amortization GAAP = Generally Accepted Accounting Principles IASB = International Accounting Standards Board IFRS = International Financial Reporting Standards JIT = Just-in-Time NPV = Net Present Value P&L = Profit and Loss R&D = Research and Development Expenses SG&A = Selling, General and Administrative Expenses