Financial Accounting
Financial Analysis and Reporting
Financial Accounting
Financial accounting is a specific branch of accounting involving a process of recording,
summarizing, and reporting the myriad of transactions resulting from business operations over a
period of time. These transactions are summarized in the preparation of financial statements,
including the balance sheet, income statement and cash flow statement, that record the company's
operating performance over a specified period.
How Financial Accounting Works
Financial accounting utilizes a series of established accounting principles. The selection of
accounting principles to use during the course of financial accounting depends on the regulatory
and reporting requirements the business faces.
Financial Statements
The financial statements used in financial accounting present the five main classifications of financial data:
revenues, expenses, assets, liabilities and equity. Revenues and expenses are accounted for and reported on
the income statement. They can include everything from R&D to payroll.
Financial accounting results in the determination of net income at the bottom of the income statement. Assets,
liabilities and equity accounts are reported on the balance sheet. The balance sheet utilizes financial accounting
to report ownership of the company's future economic benefits.
Balance Sheets
The balance sheet reports the company’s assets, liabilities, and equity, and the financial statement
rolls over from one period to the next. Financial accounting guidance dictates how a company
records cash, values assets, and reports debt.
Also known as the statement of financial position
ASSETS=LIABILITIES+OWNER’S EQUITY
COMPANY’S NAME
BALANCE SHEET
PERIOD ENDED
Assets
Current Assets
Non-Current Assets
Total Assets
XXX
Liabilities
Current Liabilities
Non-Current Liabilities
Total Liabilities
Owners Equity
Total Liabilities and Owner’s Equity
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Income Statement
An income statement reports a company’s operating activity during a specific period of time. Often
reported on a monthly, quarterly, or annual basis, the income statement reports revenue,
expenses, and net income of a company for a given period. Financial accounting guidance dictates
how a company recognizes revenue, records expenses, and classifies types of expenses.
Also known as the Profit and Loss
COMPANY’S NAME
INCOME STATEMENT
PERIOD ENDED
REVENUES
XXX
LESS EXPENSES
XXX
PROFIT
XXX
Statement of Cash Flow
A statement of cash flow reports how a company used cash during a specific period. The report is
broken into sections that summarize the operating, financing, and investing sources and uses.
Financial accounting guidance dictates when transactions are to be recorded, though there is often
little to no flexibility in the amount of cash to be reported per transaction.
Cash Flows
Cash inflows
-Cash inflow describes all of the income that is brought to your business through its activities
Cash Inflow Includes:
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Proceeds from sales of goods or services
Returns on investments
Financial activities
Interest built over time periods
Cash Outflows
Cash outflow refers to all of the expenses paid out by your business. Cash outflow includes any debts, liabilities, and operating costs-- any amount of
funds leaving your business. A healthy business maintains a positive cash flow by keeping flows from operating low, and minimizing long-term debts.
Cash Outflows include:
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Operating expenses
Liabilities
Debts (long-term debts, reinvestments)
Annual interest rates
Wholesale funding
Cash Flow from Operation
The first section of the cash flow statement covers cash flows from operating activities (CFO) and
includes transactions from all operational business activities. The cash flows from operations
section begins with net income, then reconciles all non-cash items to cash items involving
operational activities. So, in other words, it is the company's net income, but in a cash version
Cash Flows from Investing
This is the second section of the cash flow statement looks at cash flows from investing (CFI) and
is the result of investment gains and losses. This section also includes cash spent on property,
plant, and equipment. This section is where analysts look to find changes in capital expenditures
(capex).
Cash Flow from Financing
Cash flows from financing (CFF) is the last section of the cash flow statement. The section
provides an overview of cash used in business financing. It measures cash flow between a
company and its owners and its creditors, and its source is normally from debt or equity. These
figures are generally reported annually on a company's 10-K report to shareholders
Statement of Shareholder’s Equity
A statement of shareholder' equity reports how a company’s equity changes from one period to
another. The report shows how the residual value of a company increases or decreases as well as
why the residual value changed. The statement of changes in shareholder equity summarizes a
company’s net income, dividend distributions, distributions to ownership, and other changes to
equity.
COMPANY’S NAME
STATEMENT OF SHAREHOLDER’S EQUITY
PERIOD ENDED
Owner’s Capital, Beginning
Add: Additional Investment
XXX
XXX
Profit
XXX
XXX
Total
XXX
Less Withdrawals
Owner’s Capital Ending
XXX
XXX