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Financial Accounting Lecture Notes

The document provides an overview of financial accounting, including its definition, objectives, and key users. It covers accounting principles such as GAAP and IFRS, the accounting cycle, financial statements, and the importance of ethical practices in financial reporting. Additionally, it discusses financial statement analysis and the role of various stakeholders in the accounting process.

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96 views3 pages

Financial Accounting Lecture Notes

The document provides an overview of financial accounting, including its definition, objectives, and key users. It covers accounting principles such as GAAP and IFRS, the accounting cycle, financial statements, and the importance of ethical practices in financial reporting. Additionally, it discusses financial statement analysis and the role of various stakeholders in the accounting process.

Uploaded by

roacedric456
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Accounting Lecture Notes

Chapter 1: Introduction to Financial Accounting

1.1 Definition and Purpose

Financial accounting is the process of recording, summarizing, and reporting financial transactions of a
business to external users such as investors, creditors, and regulatory agencies.

1.2 Objectives of Financial Accounting

 To provide financial information to stakeholders.

 To ensure compliance with laws and regulations.

 To assist in decision-making processes.

1.3 Key Users of Financial Information

 Investors

 Creditors

 Management

 Government agencies

 Employees

Chapter 2: Accounting Principles and Standards

2.1 Generally Accepted Accounting Principles (GAAP)

GAAP is a framework of accounting standards, principles, and procedures used in financial reporting.

2.2 International Financial Reporting Standards (IFRS)

A global set of accounting standards issued by the International Accounting Standards Board (IASB).

2.3 Key Accounting Principles

 Accrual Principle – Revenue and expenses are recognized when incurred, not when cash is
exchanged.

 Consistency Principle – The same accounting methods should be used across periods.

 Materiality Principle – Significant information should be disclosed in financial reports.

 Prudence Principle – Financial statements should be prepared with caution to avoid


overstatement of assets or income.

Chapter 3: The Accounting Cycle

3.1 Steps in the Accounting Cycle

1. Identifying and analyzing transactions


2. Recording journal entries

3. Posting to the ledger

4. Preparing a trial balance

5. Adjusting entries

6. Preparing financial statements

7. Closing entries

3.2 Types of Accounts

 Assets – Resources owned by a business (e.g., cash, inventory, property).

 Liabilities – Obligations of a business (e.g., loans, accounts payable).

 Equity – Owner’s interest in the business.

 Revenue – Income earned from business activities.

 Expenses – Costs incurred to generate revenue.

Chapter 4: Financial Statements

4.1 Balance Sheet

 Represents a company's financial position at a specific point in time.

 Equation: Assets = Liabilities + Equity

4.2 Income Statement

 Shows a company’s financial performance over a period of time.

 Equation: Net Income = Revenue - Expenses

4.3 Cash Flow Statement

 Reports cash inflows and outflows categorized as operating, investing, and financing activities.

4.4 Statement of Changes in Equity

 Shows changes in a company’s equity over a period due to profits, losses, dividends, or
additional investments.

Chapter 5: Recording Transactions

5.1 Double-Entry Accounting

 Every transaction affects at least two accounts (debits and credits must be equal).

5.2 Journal Entries

Example:
 A company purchases office supplies for $500 in cash.

o Debit: Office Supplies $500

o Credit: Cash $500

Chapter 6: Adjustments and Closing Entries

6.1 Adjusting Entries

 Ensure accounts are updated before preparing financial statements.

 Examples: Prepaid expenses, depreciation, accrued revenue.

6.2 Closing Entries

 Temporary accounts (revenues, expenses, dividends) are closed to retained earnings.

Chapter 7: Financial Statement Analysis

7.1 Ratio Analysis

 Liquidity Ratios (e.g., Current Ratio = Current Assets / Current Liabilities)

 Profitability Ratios (e.g., Net Profit Margin = Net Income / Revenue)

 Solvency Ratios (e.g., Debt-to-Equity Ratio = Total Liabilities / Total Equity)

Chapter 8: Ethics in Financial Accounting

 Importance of transparency and accuracy in financial reporting.

 Common ethical issues: Fraud, misrepresentation, insider trading.

 Role of regulatory bodies (e.g., SEC, PCAOB).

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