Accounting Mba
Essay by Seif Ramadan • November 18, 2016 • Course Note • 3,222 Words (13 Pages) • 1,040 Views
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Financial accounting:
Define Accounting: accounting system collects financial information for an organization and report that information for decision makers.
The accounting equation:
Assets = Liabilities + Shareholders Equity[pic 2][pic 3][pic 4][pic 5]
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This equation for all kinds of companies servicing, merchandising & manufacturing
Briefly distinguish financial accounting from managerial accounting:
Financial accounting | Managerial accounting | ||
Time frame | Periodic financial statements and related disclosures. Monthly or Quarterly Or Annually | Detailed plans and continued performance reports | |
Users | External users | Internal users | |
Example for users | Creditors, investors, suppliers & customers. | Managers. |
Users:
What are the expectations of the investors when they acquire shares?
Investors Shareholders [pic 9]
Current Potential
- Dividends to be received - Part of profit distributed to shareholders - Share price to increase (Capital Gain)
What are the expectations of the banks when they grant a loan to a borrower?[pic 10][pic 11][pic 12]
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Creditors for Example: Banks [pic 31]
- To get the periodic interest.
- To get principal of the loan back.
Important Notice:
Investors & creditors are the primary users of financial accounting information.
What is the useful information provided by financial accounting?
- Profitability information
- Financial position (Assets + Liabilities + Shareholders Equity)
- Cash Flows
Legal form for an organization:
- Sole proprietorship: Single owner.
- Partnership: Two partners or more.
- Corporation: Owned by shareholders (stockholders or stakeholders). [pic 32]
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Major types of business organization:
Service business provides services for a price.
Merchandising business buys merchandises for reselling them again.
Manufacturing business acquire raw material which are processed for finish products.
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The four basic financial statements:
- Income statement, Operation statement or Earnings statement
Equation: Net income = Revenue – Expenses
The non-operating revenue:
Depositing money in bank & receive interest.
- Interest revenue Non-operating Revenue[pic 53]
Company owns building five floors, uses four floors and rented the fifth floor for 60,000 $.
- Rent revenue Non-operating Revenue[pic 54]
Example 1:
Company X | Company Y | |||
Money In Dollar | Percentage | Money In Dollar | Percentage | |
Assets | 20,000,000 | 100% | 20,000,000 | 100% |
Liabilities | 16,000.000 | 80% | 7,000,000 | 35% |
Shareholders' Equity | 4,000,000 | 20% | 13,000,000 | 65% |
Shareholders Equity = Assets - Liabilities
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How do we prepare financial statements?
Financial statements are prepared using a set of accepted methods and procedures called Generally Accepted Accounting Principles (GAAP).
Example 2:
Company X Advertising during 2014
Provided services for 1,500,000
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