Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

Accounting Fundamentals Course Presentation, Lecture notes of Corporate Finance

Accounting Fundamentals Course Presentation

Typology: Lecture notes

2021/2022

Available from 02/10/2023

Dan_Donald
Dan_Donald 🇺🇸

40 documents

1 / 39

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
Accounting Fundamentals
corporatefinanceinstitute.com
pf3
pf4
pf5
pf8
pf9
pfa
pfd
pfe
pff
pf12
pf13
pf14
pf15
pf16
pf17
pf18
pf19
pf1a
pf1b
pf1c
pf1d
pf1e
pf1f
pf20
pf21
pf22
pf23
pf24
pf25
pf26
pf27

Partial preview of the text

Download Accounting Fundamentals Course Presentation and more Lecture notes Corporate Finance in PDF only on Docsity!

Accounting Fundamentals

Constructing

a Balance

Sheet

The three key financial statements

The financial statements are a record of the financial activities of a business.

  1. Balance sheet 2. Income statement 3. Statement of cash flows Assets Liabilities Equity Revenues Expenses Profit or loss Operating Investing Financing

The balance sheet

Total Assets Total liabilities & equity Non-current assets Last more than a year e.g. property, plant and equipment, technology, patents, trademarks Current assets Used within one year e.g. cash, inventory, accounts receivable Current liabilities Due within one year e.g. accounts payable Shareholders’ equity e.g. common shares and retained earnings Non-current liabilities Due in more than a year e.g. long-term debt

Balancing the balance sheet

Two options:

Record the transaction on both sides of the balance sheet

Record the transaction twice on the same side of the balance sheet as both positive and negative number Assets Current assets Cash Non current assets (100) Total Assets (100) Liabilities & Shareholders’ Equity Current liabilities Short-term debt (100) Non current liabilities Shareholders’ equity Total Liabilities & SE (100) Assets Current assets Cash Non current assets Equipment (100) 100 Total Assets 0 Liabilities & Shareholders’ Equity Current liabilities Non current liabilities Shareholders’ equity Total Liabilities & SE 0

Recording transactions

A company engaged in the following transactions:

  • Issued shares for 100 in cash
  • Took out a four year bank loan of 50
  • Bought equipment and machinery for 80
  • Bought inventory for 60
  • Sold all the inventory for 90
  • Paid salaries of 20
  • Paid interest of 3

How would they be recorded

in the balance sheet?

Taking out a 4 year bank loan

Assets Current assets Cash [100 + 50] 150 Non current assets Total 150 Liabilities & Shareholders’ Equity Current liabilities Non current liabilities (^50) Shareholders’ equity Common stock (^100) Total (^150)

Buying a property for 80

Assets Current assets Cash [100 + 50 ]– 80] 70 Non current assets Equipment (^80) Total 150 Liabilities & Shareholders’ Equity Current liabilities Non current liabilities (^50) Shareholders’ equity Common stock 100 Total 150

Selling all inventory for 90

Assets Current assets Cash [100 + 50 – 80 – 60

  • 90] Inventory [60 – 60]

Non current assets Equipment

Total 180 Liabilities & Shareholders’ Equity Current liabilities Non current liabilities Bank loan

Shareholders’ equity Common stock Retained earnings Revenues Cost of sales Total shareholders’ equity

Total 180

]

Paying salaries of 20

Assets Current assets Cash [100 + 50 – 80 – 60

  • 90 Inventory [60 – 60]

Non current assets Equipment

Total (^160) Liabilities & Shareholders’ Equity Current liabilities Non current liabilities Bank loan

Shareholders’ equity Common stock Retained earnings Revenues Cost of sales Salaries Total shareholders’ equity

Total (^160)

Defining accounts receivable and payable

Assets Current assets Cash [100 + 50 – 80

  • 90] Inventory [60 – 60]

Non current assets Equipment

Total 180 Liabilities & Shareholders’ Equity Current liabilities Non current liabilities Bank loan

Shareholders’ equity Common stock Retained earnings Revenues Cost of sales Total shareholders’ equity

Total 180

]– 60

Defining accounts receivable and payable

How would our balance sheet

look different if the

company…

Accounts receivable – amounts owed by customers to the company Accounts payable – amounts owed by the company to suppliers

  • Bought inventory for 60 on credit rather than using cash?
  • Sold all the inventory for 90 on credit rather than for cash?

Click on the link “Vadero Inc exercise” with instructions

Balance sheet exercise

Once you’ve had a go, click on the attachment link “Vadero Inc solution” Now it’s your turn…

Constructing an

Income Statement