accountingclassroom.

com 2008 Student Notes for ACCA F3-Financial Accounting

Elements of Financial
Statements
Topic 2
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Session Objectives
Explain the main elements of financial
statements
Describe the purpose of financial
statements
Identify the main types of business
transactions
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Session Objectives
Describe the accounting equation
Explain the matching convention and
duality concept
Draft simple financial statements
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
What are Financial Statements
Reports that quantitatively summarize
the financial status of an organization for
a stated period of time. They include an
income statement and balance sheet
describing the flow of resources, profit or
loss, and the distribution or retention of
profits.
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Primary Financial Statements
Balance sheet
Income Statement
Statement of Cash Flows
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Balance Sheet
Describes where the enterprise stands at
a specific date. It can be shown in two
formats:
Horizontal
Vertical
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Example of a Horizontal
Balance Sheet
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Example of a Vertical Balance
Sheet
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Income Statement
Depicts the revenue and expenses for a
designated period of time.
Net income (or net loss) is simply the
difference between revenues and
expenses.
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Example of Income Statement
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Statement of Cash Flows
Depicts the ways cash has changed
during a designated period of time.
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Balance Sheet Equation
Assets Liabilities = Proprietor's Capital
Horizontal format balance sheet is an
expansion of this form of the accounting
equation
Assets = Proprietor's Capital + Liabilities
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Assets
Assets are economic resources that are
owned by the business and are expected
to provide positive future cash flows.
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Assets
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Types of Assets
Fixed Assets
Any tangible or intangible asset acquired on
a long-term basis to be used in providing a
service to the business
Not held for resale in normal course of
business e.g. land and buildings, plant and
machinery
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Types of Assets
Current Assets
Assets which are expected to be realised in
the normal course of trading
Disclosed in the balance sheet with least
liquid asset first e.g. Stock, debtors
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Liabilities
Liabilities are debts that represent
negative future cash flows for the
enterprise.
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Liabilities
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Types of Liabilities
Long-term liabilities
Payable more than 12 months after the
balance sheet date e.g. loan
Current liabilities
Payable within 12 months of the balance
sheet date e.g. creditors, bank overdraft
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Owners Equity
Owners equity represents the owners
claim to the assets of the business.
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Owners Equity
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Changes in Owners Equity
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Understanding Income
Statement
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
The Concept of the Business
Entity
According to this concept, a business
entity is separate from the personal
affairs of its owner..
accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Revisiting Accounting
Equation
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Relationships Among Financial
Statements