Finances Summary

Chapter 1 Finance – Intro to accounting

* What are accounting and Finance?
* Accounting:collecting,analyzing and communicating financial info
* Used for: develop new products or services, incr or dec price or quantity of existing products or services, borrow money to help finance the business
* Finance: ways in which funds for a business are raised and invested
*Identifies: mains forms of finance available, costs and benefits of each form of finance, risks associated
* Evaluates: returns from investments, risk associated with investments
* Users of Accounting Information:
* Owners, customers, competitors, managers, lenders, suppliers, government
* Providing a service + usefulness of accounting information:
* Relevance (ability to influencedecisions), Reliability(free from errors), Comparability(enable to identify changes in business Long-time), Understandability(clear) “all these should be material(significant)”
* Accounting as an information system
* Accounting information system: Information Identification, Info recording, Info analysis, Info reporting
* Management and Financial Accounting
* Management Accounting:seeks to meet the accounting needs of managers
* Financial Accounting: seeks to meet users of accounting information need’s
* Differences: Nature of reports Produced (FA-general purpose, MA-specific), Level of detail (FA-broad overview, MA-operational detail), Regulations(FA-external regulations,MA-internal regulations), reporting interval,time orientation, quality of info.
* Changingface of accounting
* Changes: increasing sophistication of customers, development of global economy, rapid changes in technology, increasing pressure of owners(competitivity)
* Why do I need to know about accounting and finance
* To: continue with certain business operations, invest in particular projects, sell products
* Important aspects: how financial reports should be read andinterp, how financial/investment plans are made, how businesses are financed
* Purpose of a business: to create and keep a customer
* Kinds of Business Ownership (3main)
* Sole proprietorship – easy to set up + flexible to operate, owner has unlimited liability
* Partnership – easy to set up and spread the burdens of ownership, partners have usually unlimited liability and there areownership risks if partner are unsuitable
* Limited company – limited liability for owners, obligations imposed on the way
* How are businesses organized and managed?
* Most businesses are set up as limited companies
* A board of directors is appointed by shareholders to oversee the running of the business
* Divided into functional lines, or geographical and product lines
*The move to strategic management has been caused by more competition
* Financial Objective of a Business
* Enhance wealth of its owners, this does not mean that employees should be ignored
* Right balance between risk and return

Chapter 2 – Measuring and Reporting financial position

* Major Financial Statements:
* Statement of cashflows: cash movements over a particularperiod
* Income Statement: shows the profit generated over a particular period
* Financial Position: shows accumulated wealth at a particular period
* Statement of Financial Position:
* Assets: resources of the business that have certain characteristics, such as ability to provide future benefits
* Claims: obligations on the part of the business to provide cash, or some outsidebenefits
* Equity: claims of the owners
* Liabilities: claims of others
* Classification of Assets and Libilities
* Assets:
* Current: cash or near cash in the normal course of business, or for trade, short term. (inventories, cash, trade receivables)
* Non-current: held for long term operations
* Liabilities:
* Current: amounts due in the normal course of the...