Financial accounting

Financial accounting

1. 3 basic activities

   • 1. Identify
     • The economic events relevant to the company´s business that happens between the company and a third party and can be translated into currency
   • 2. Record
     • The identified economic events in chronological diary of events.
   • 3. Comunicate
     • Through reports that are known as financial sheets

2. Limited Liability Companies (LLC)

   • Characteristics
     • Their owners are known as the SHAREHOLDERS
     • Shareholders have Liabilities (only their shares are liable)
     • LLC limits the owners liabilities to their investors
     • LLC can change its members without disolution of society
     • Is a ''person'' distinct from its owners legally
   • 2 types
     • Private Companies (LTD)
       • Owners are not allowed to trade on an organized exchange
     • Public Companies (PLC)
       • Owners are allowed to trade on an organized exchange

3. Basic accounting equation.

   • ASSETS = EQUITY + LIABILITIES
     • EQUITY = SHARE CAPITAL + NETI NCOME/LOSS - DIVIDENDS

4. Four financial statements

   • INCOME STATEMENT
     • Revenues : Is the amount earned from a company main activity
     • Expenses: Is a cost used up in revenues in a company's main operation
     • Revenues/ gains - Expenses/losses = Net income
   • BALANCE SHEET
     • Assets: Goods and rights controled by an entity
     • Equity: Investments made by investors and share holders
       • Current: < 1year
       • Non- current: >1 year
     • Liabilities: Obligation to creditors
   • STATEMENT OF CASH FLOWS
     • I cash flow from OPERATING ACTIVITIES
       • Operating activities: All other activities that are not cosidered investing or financing
         • Current assets, and liabilities
     • II Cash flows from INVESTING ACTIVITIES
       • Investing activities: Related to non current assets
         • Long-term assets
     • III Cash flow from FINANCING ACTIVITIES
       • Financing activities: Payments to and receipts from investors
         • Long term liabilities and Equity
     • IV cash at the end of the period = cash at the beginning of the period + net increase in cash

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