Financial accounting
Dorota Kuchta
Literature:
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P.D. Kimmel, J.J. Weygand, D.E. Kieso, Accounting for Business Decision Making
M. Piper, Accounting made simple
Financial accounting functions and basic elements:
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Recording and interpreting financial information
Fair and true view of the organization (difficult)
Double entry – accounts
Financial statements:
o Balance sheets
o Loss and profit statement
o Cash flow
o Supplementary information
Accounts: Debit (where to, what for the money goes), Credit (where from, who from the money
comes)
Four types:
Assets: what we possess or have the right to (equipment, inventory, bank, debtors (accounts
receivable, customers) etc.))
Liabilities: how the assets are financed (creditors (accounts payable, suppliers), bank, state etc.)
Capital: investment + profit
Income: the value of what we have sold in terms of the customer’s price (independent of the
payment moment)
Expenses: the value of what we have used to generate income (wages, cost of goods sold, materials
used, electricity and other external services, advertisement etc.)
(Profit=Net Income=Income-Expenses, our own money source – not given, not lent)
(Capital = assets – liabilities – what somebody has “given” ( invested in our organization) plus profit)
Financial statements:
Balance sheet : assets = capital plus liabilities on a given day
Loss and profit statement : Income, Expenses, profit in a period (between two consecutive balance
sheet days)
Cash flow statement: cash at the beginning of the period, cash inflows in the period, cash outflows in
the period, cash at the end of the period.