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FINANCIAL ACCOUNTING
H. E. SALENDREZ
2 LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the basics of financial accounting, and the theories involved in
the field.
Understand the basics of the generally accepted accounting principles as
stated by Financial Reporting Standards Council, and be able to apply them
in particular scenarios
Differentiate and distinguish the different components of a complete set of
financial statements
Learn the components of complete set financial statements
Know the elements of financial statements that made up each components
Understand the use and purpose of each financial statements
Primary Focus of Financial Accounting
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Recognition,
Measurement,
Qualitative and Presentation
Elements and Disclosure
Characteristics
Capital and
Capital Maintenance
Financial
Constraints Statements Continued
Objective of financial reporting
Recognition
7 Qualitative Provides relevance
Elements and faithful
Characteristics representation
Fundamental Financial Position
Assets Measurement
Relevance
Liabilities Measurement bases
Faithful representation
Equity Presentation and
Enhancing
Comparability Performance Disclosure
Verifiability Income
Capital and
Timeliness Expenses
Capital Maintenance
Understandability Concepts
Financial Statements
Statement of financial position
Statement of profit or loss and
Constraint other comprehensive income
Other statements and disclosures
Cost
Underlying assumption (going concern)
effectiveness
Reporting entity (boundary of entity)
Qualitative Characteristics of
8 Financial Reporting Information
9 Measurement bases
Measurement is the process of determining the monetary
amounts at which the elements of the financial
statements are to be recognised and carried in the SFP
& IS.
Historical cost. Assets, liabilities and related income and
expenses are recorded at transaction price or other event
that gave rise to them.
Current cost. Assets are carried at the amount of cash that
have to be paid if the same asset was acquired currently.
Liabilities are carried at the amount of cash that would be
required to settle the obligation currently.
10 Measurement bases
Realizable value. Assets are carried at the amount of cash
that could currently be obtained by selling the asset in an
orderly disposal. Liabilities are carried at the amount of cash
expected to be paid to satisfy liabilities in the normal course
of business.
Present value. Assets are carried at the present discounted
value of the future net cash inflows that is expected to
generate in the normal course of business. Liabilities are
carried at the present discounted value of the future net cash
outflows that are expected to be required to settle the
liabilities in the normal course of business.
Elements of Financial Statements
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An asset is an economic resource that a company has
control over and that arises from past events.
The definition of a liability consists of three components:
present obligation, obligation to transfer economic
resources, and past events.
Equity comprises the remaining interest in a company’s
assets after deducting liabilities.
Income (revenues and gains) comes about from increment
in assets or reduction in liabilities and leads to increases in
equity, except those pertaining to shareholder contribution.
Expenses (including losses) come about from reduction in
assets or increment in liabilities and result in decreases in
equity, except those pertaining to shareholder distributions.
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Financial Statements
Primary means of communicating financial
Primary
information to external parties.
Statement of Financial Position:
Position presents organized list
of assets, liabilities, and equity at a point in time.
Statement of Profit or Loss and Other Comprehensive
Income: summarizes the income-generating
income
activities that caused shareholders’ equity to
change and that were not a result of transactions
with owners. Presented either in a single, continuous
statement, or in two separate but consecutive
statements.
13 Financial Statements
Inflows from:
• Sales to customers.
• Interest and dividends
received from investments. +
Outflows for:
Cash
• Purchase of inventory. Flows
• Salaries, wages, and other From
operating expenses.
_ Operating
• Interest on debt.
• Income taxes. Activities
• Dividends paid.
Cash Flows From Investing Activities
31 Inflows from:
• Sale of long-lived
lived productive assets used
in the business.
• Sale of investment securities (except
cash equivalents and trading securities).
• Collection of nontrade receivables. + Cash
• Interest or dividends from investments. Flows
From
Outflows for: Investing
• Purchase of long-lived
lived productive assets Activities
used in the business. _
• Purchase of investment securities (except
(
cash equivalents and trading securities).
• Create nontrade receivables, loans to
other entities.
Cash Flows From Financing Activities
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Inflows from:
• Issuance of ordinary and
preference shares.
• Borrowing from creditors
through notes, loans, +
mortgages, and bonds. Cash
Outflows for: Flows
• Share repurchase. From
• Repayment of principal
amount of debt. Financing
• Payment of dividends to _ Activities
shareholders.
• Payment of interest on
debt.
33 Notes to the financial statements
The notes must:
present information about the basis of preparation of
the financial statements and the specific accounting
policies used
disclose any information required by PFRSs that is not
presented elsewhere in the financial statements and
provide additional information that is not presented
elsewhere in the financial statements but is relevant to
an understanding of any of them
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Thank you!