Accounting Equations
Financial statement elements (assets, liabilities, owners’ equity, revenue and expenses) are used as the inputs for the equations which feed into the preparation of a company’s financial statements. The balance sheet and income statement are two of the most popular…
Recording Business Transactions
An accounting system allows a company to translate its business activities into usable financial records. The company uses these financial records to assess its profitability, evaluate its financial position, and identify any business activity which requires further action. Recording Business…
Relationships Among Statements
Financial statements use the financial data that is reported in the accounting system to present data in a more meaningful manner. The primary financial statements are: balance sheet, income statement, statement of cash flows, statement of owners’ equity, and statement…
Flow of Information in an Accounting System
It is important for accountants to understand each step involved in an accounting system. This is because they are the ones who will be preparing the financial records which are subsequently presented in financial statements. Analysts, on the other hand,…
The Accounting Process in Security Analysis
Financial statements are products of the accounting process. They provide useful and meaningful information on the financial performance of a company. These pieces of information are particularly useful to managers, investors, creditors, and analysts who rely on them to make…
Current and Non-current Assets – Liabilities
The classified balance sheet distinguishes between current and non-current assets and between current and non-current liabilities. It classifies them separately. Current Assets vs. Non-current Assets Current assets are assets that are primarily held for trading or which are expected to…
Measurement Bases – Assets and Liabilities
Financial assets are measured and reported either at fair value or amortized cost. IFRS defines fair value as the amount at which an asset could be exchanged or a liability settled in an arm’s length transaction between knowledgeable and willing…
Components of Shareholders’ Equity
Shareholders’ equity represents the owners’ residual claim on a business entity’s assets after deducting its liabilities. This includes all funds that were directly invested in an entity by its owners, earnings that have been reinvested over time, and unrealized gains…
Costs Included in Inventories and Costs Recognised as Expenses
The amounts reported as ‘inventories’ and ‘cost of goods sold’ are two significant items that can appear on a company’s financial statements, especially for manufacturing and merchandising companies. Some costs are included in the asset ‘inventories,’ while others are recognized…
