M.B.
Course content
Introduction session: Around Accounting and Finance
Chapter 1: Financial Statement Analysis
Chapter 2: Investment Decisions Process
Chapter 3: Management Control System
Chapter 4: Fundamentals of Auditing
Conclusion session: Perspectives of A.C.A.
M.B.
Introduction
session
Around Accounting and
Business
M.B.
“
Accounting is the process of
identifying, recording, summarizing,
and reporting in monetary terms
informations about businesses .
”
Users of accounting informations
Internal users
01
02
03
Top, middle
and lower
managers
M.B.
External users
04
Owners
05
Employees
06
Investors and
prospective
owners
Creditors
and lenders
Government
and tax
authorities
Financial accounting Vs Cost Accounting
Elements
Financial accounting
Cost accounting
Purpose
Communication of financial
position
Decision making
Requirement
Mandatory
Optional
Primary
audience
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External: Investors, regulators Managers and decision
and tax authorities
makers
Focus
Past transactions
Past and actual
information for future
decisions
Period
Period of reporting of
financial accounting is at the
end of financial year.
When required
Expenses
classification
By nature
By destination
Scope
Company wide
Per segment, per
product
Chapter 1: Financial statement
analysis
M.B.
What is a business
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transaction?
A business transaction is an economic event or an
interchange of goods or services between two or more
parties. This event changes directly an entity’s financial
condition and affects its results of operations.
M.B.
The Account
Financial records of an organization that register all financial
transactions, each individual account is stored in the general ledger and
used to prepare the financial statements at the end of an accounting
period.
Each account has:
Title
Left side
Debit
Right side
Credit
The alignment of these parts resembles the letter T and therefore, the
account form is called a T account
Double entry system
(general ledger)
M.B.
The double-entry system of accounting or bookkeeping means that
for every business transaction, amounts must be recorded in a
minimum of two accounts. The double-entry system also requires that
for all transactions, the amounts entered as debits must be equal to the
amounts entered as credits.
For each transaction
Total debits
Total credit
=
Example: Your company writes monthly a check of $1000 to a house
owner in order to pay its rent.
 The cash account is reduced by $1000
 The rent expense account is increased by $1000
Double entry system (Journal)
M.B.
Example : Company A was incorporated on January 1, 2020 with an initial capital of
5,000 shares of common stock having $20 par value. During the first month of its
operations, the company engaged in the following transactions:
-
On January 4, the company purchases office supplies costing 17,600 dhs on credit.
-
On January 18, the company provided 54 100 dhs worth of services to its
customers.
Date
Account
Office supplies
January 4
Debit
Credit
17 600
Accounts payables
17 600
Purchase supplies on account
Date
January 18
Account
Debit
Credit
Accounts receivables
54 100
Service revenues
54 100
Sales of services
M.B.
Financial statements
" Financial statements are written records that convey the
business activities and the financial performance of a company
by summerizing financial transactions over a designated
period of time."
M.B.
Balance sheet
The balance sheet is a snapshot of the financial position of
an organization on a particular point in time, usually
prepared at the end of the year.
Assets
What the company owns
=
Liabilities + Stockholders Equity
• Liabilities: How the ownership of
assets was financed (debts)
• Equity = owners capital
M.B.
Classification of assets
Fixed
assets
Long term assets
such as lands
and buildings .
Their value
reduces over a
period of time
considering the
depreciation.
Current
assets
Tangible
assets
Short term
assets which can
be converted
easily into cash.
Inventories,
government
bonds, trade
receivables etc
Tangible assets
are assets which
we can touch,
see and feel. All
fixed assets are
tangible.
Machinery, Cash
at bank, Stocks.
Intangible Fictitious
assets
assets
Assets which
cannot be seen,
touched and
have no physical
existence.
Goodwiil,
patents and
trademarks
The assets which
are valueless but
are shown in the
financial
statements until
they are written
off. Preliminary
expenses
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Classification of liabilities
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Balance sheet sample in
thousands
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Income statement
" An income statement is one of the three important financial
statements used for reporting a company's financial
performance over a specific accounting period. Also known
as the profit and loss statement , the income statement
primarily focuses on the company’s revenues and expenses."
Examples of Revenue Accounts
Examples of Expense Accounts

Sales

Cost of goods sold

Service revenue

Depreciation expense

Interest revenue

Interest expense

Dividend revenue

Rent expense

Rent revenue

Salary expense
Single-Step Income Statement
The single-step statement
consists of just two groupings:
Revenues
Expenses
SingleStep
Net Income
No distinction between Operating
and Non-operating categories.
Chapter
4-17
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Income Statement (in thousands)
Revenues:
Sales
Interest revenue
Total revenue
Expenses:
Cost of goods sold
Advertising expense
Depreciation expense
Interest expense
Income tax expense
Total expenses
Net income
$ 285 000
17 000
302 000
149 000
10 000
43 000
21 000
24 000
247 000
$ 55 000
Ex 1: Prepare an income
statement from the data
below.
Single-Step Format
M.B.
Income Statement
For the year ended Dec. 31, 2019
Administrative expense:
Officers' salaries
Revenues:
$
4 900
Sales
Depreciation
3 960
Rental revenue
Cost of goods sold
63 570
Rental revenue
17 230
Selling expense:
$
96 500
17 230
Total revenues
113 730
Expenses:
Cost of goods sold
63 570
17 150
Transportation-out
2 690
Selling expense
Sales commissions
7 980
Administrative expense
8 860
Depreciation
6 480
Interest expense
1 860
Income tax expense
7 580
Sales
96 500
Income tax expense
7 580
Interest expense
1 860
Chapter
4-18
Total expenses
Net income
99 020
$
14 710
Multiple-Step Income Statement
The presentation
divides information into
major sections.
1. Operating Section
2. Non-operating
Section
Chapter
4-19
M.B.
Income Statement (in thousands)
Sales
$ 285 000
Cost of goods sold
149 000
Gross profit
136 000
Operating expenses:
Advertising expense
10 000
Depreciation expense
43 000
Total operating expense
53 000
Income from operations
83 000
Other revenue (expense):
Interest revenue
17 000
Interest expense
(21 000)
Total other
(4 000)
Income before taxes
79 000
Income tax expense
24 000
Net income
$ 55 000
Multiple-Step Income Statement
–
=
–
–
=
+/–
=
–
=
Chapter
4-20
Sales
Cost of goods sold
Gross profit
Operating expenses:
Selling expenses
General and
administrative expenses
Income from operations
Other revenues and expenses
Income before taxes
Income tax expense
Net income
M.B.
Four
important
subtotals
Ex 2: Prepare an income
statement from the data
below.
Administrative expense:
Officers' salaries
Multiple-Step Format
Income Statement
For the year ended Dec. 31, 2019
Sales
$
M.B.
$
96 500
4 900
Cost of goods sold
63 750
Depreciation
3 960
Gross profit
32 750
Cost of goods sold
63 750
Operating Expenses:
Rental revenue
17 230
Selling expense
Selling expense:
Administrative expense
Transportation-out
2 690
Sales commissions
7 980
Income from operations
Depreciation
6 480
Other revenue (expense):
Sales
96 500
Income tax expense
7 580
Interest expense
1 860
Chapter
4-21
17 150
8 860
Total operating expenses
26 010
6 740
Rental revenue
17 230
Interest expense
(1 860)
Total other
15 370
Income before tax
22 110
Income tax expense
7 580
Net income
$
14 530
Income statement: Cost of goods sold
M.B.
" Cost of goods sold (COGS) is the cost of acquiring or
manufacturing the products that a company sells during a period,
including the direct cost of labor, materials and manufacturing
overhead. The cost of goods sold is reported on the income
statement and should be viewed as an expense.”
M.B.
" The Statement of Cash Flows (also referred to as the cash flow
statement) is one of the three key financial statements that report
the cash generated and spent during a specific period of time. The
statement of cash flows acts as a bridge between the income
statement and balance sheet by showing how money moved in and
out of the business."
• 3 sections reporting cash flows from different activities
– Cash flows from operating activities
– Cash flows from investing activities
– Cash flows from financing activities
M.B.
Cash flows from operating activities
• The principal revenue-generating business activities of an
organization (any cash flows from current assets and current
liabilities).
Outflows
Inflows

Cash collected from
customers

Sale proceeds from
trading securities
(Short period)

Taxes, Royalties, VAT
and dividends received

Cash paid to employees
and suppliers

Cash paid to creditors

Fees and interests paid
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Cash flows from investing activities
• Investing activities relate to the acquisition and disposal of
long-term tangible and intangible assets and other
investments.
Inflows



Sale proceeds from fixed
assets and marketable
securities
Outflows

Cash used for capital
expenditures

Payment for business
acquisitions or joint ventures

Lending money
Sale proceeds from equity
investments (Long term)
Sale proceeds from
divestitures
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Cash flows from financing activities
• Cash Flow from financing activities result from changes in the size and
composition of the equity capital or borrowings of the entity. It includes
the sources of cash from investors or banks, as well as the uses of cash
paid to shareholders.
Outflows
Inflows

Proceeds from issuing
stocks

Principal paid on debt

Borrowing long and short
term loans

Payments to reacquire stocks

Dividends paid to shareholders

Donor contributions