Financial Accounting Essays

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For example, if the debtors’ balance has increased compared to the previous year, it is indicative of a negative impact on cash, as more items would have been sold on credit.

Net cash flow from operations is indicative of the ability of a business to generate cash flows from its operations.

You will also learn about concepts such as accruals and prepayments.

concept of accounting underpins the accounting technique of double entry system.

It provides a summary of a company’s revenue and expenses from operating and non-operating activities.

The structure of an income statement is as follows: March 2017 Sales Cost of Sales Gross Profit Selling and Distribution Expenses Administrative Expenses Other Expenses Operating Profit Finance Income Finance Cost Profit before tax Income Tax Net Profit You will understand what a balance sheet is and how to compete one.The structure of the indirect method of cash flow is as follows: Profit before Tax Add: Net Finance Expense Non cash items Decrease in current assets Increase in current liabilities Less: Decrease in current liabilities Increase in current assets Tax paid during the year Net cash flow from operating activities Add: Proceeds from issue of shares Less: Redemption of debentures Interest paid Dividend Paid Net Cash flow from financing activities Change in cash and cash equivalents during the year Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The indirect method of cash flow is prepared by taking profit before tax from the income statement and adjusting it for non-cash items such as depreciation or amortisation.Thereafter, the profit figure is adjusted for the changes in the current assets and current liabilities over a period of time to arrive at the net cash flow from the operations.Double entry is classification of items into one of the five categories: assets, liabilities, equity, income or expense.The objective of this module is to help you understand the application double entry accounting techniques to a range of simple transactions.The accruals concept of accounting states that a transaction is recorded at the time when it takes place, not when the settlement is made.On the other hand, a prepayment is the payment of an obligation or instalment payment before its due date.Second, the emphasis of financial accounting is on the financial consequences of past activities while management accounting is oriented towards using the financial data to make decisions for the future (Garrison, Noreen & Brewer 2011, p. Financial accounting is more of a historical account of business activities whereas management accounting aims to project financial events that are yet to come.Third, financial accounting focuses on objectivity and verifiability, while management accounting emphasizes relevance (Garrison, Noreen & Brewer 2011, p. Relevance in management accounting means that the financial information should be applicable to the problem.In short, a balance sheet reflects the position of a company’s assets and liabilities at a particular point of time.The structure of a balance sheet is as follows: March 2017 Non Current assets Property plant and equipment Investments Current Assets Stock Debtors Cash Total Assets Non Current Liabilities Loan Pension Liabilities Current Liabilities Bank overdraft Creditors Accruals Equity Share Capital Retained Earnings Total Liabilities and Equity The last financial statement examined is the cash flow statement.

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