FINANCIAL

01

Financial Accounting
ACCOUNTI
NG 188
188 cpt 2-3
VERSION 2.0  - 2020
 WHAT IS AN 02

ENTITY ?
what is an entity?

FINANCIAL POSITION
•It is the financial value of an entity at a particular
moment in time expressed in a monetary value.
Financial position = A-L
Financial position = Equity

ACCOUNTING EQUATION
Equity = Assets - Liabilities
NB: equation must always balance
 ACCOUNTING
EQUATION
HOW IS PROFIT
EQUITY GENERATED?
Owners interest Assets provide income
Financial value income - expenses = Profit
Result of the
accounting equation
A-L
Thus : Owners NEED MONEY TO START A BUSINESS?
contributions - Profit
Owners contributions (E) + Loans (L) = Assets 03
or losses
FINANCIAL POSITION = ASSETS – LIABILITIES
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(OWNER’S EQUITY)
E= A-L
ASSETS
•A present economic RESOURCE
•CONTROLLED by the entity
•as a result of PAST EVENTs
An economic resource is a right
that has the potential to produce
ECONOMIC BENEFITS
ASSETS WHAT IS MEANT BY CONTROLLED ?
•Owner (legal title) or

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•Must control the advantages from having asset
in your possession

WHAT IS MEANT BY ECONOMIC

BENEFITS ?
•Potential of asset to directly or indirectly
11 contribute to the inflow of cash to the entity
WAYS IN WHICH ECONOMIC 16

BENEFITS FLOW
•Used singly or in combination
with other assets in the production
of goods or services to be sold by
the entity

•Exchanged for other assets

•Used to settle a liability

•Distributed to the owners of the

entity
 TYPES OF ASSETS
NON- CURRENT ASSETS CURRENT ASSETS

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LIFESPAN - Greater than 12
months
Utilize asset as long as
possible to generate income
LIFESPAN= Smaller than 12
months
Sell asset as quickly as
possible to generate cash
•Land and Buildings •Inventory
•Machinery •Debtors
•Vehicles •Cash in bank
•Investments •Petty Cash
•Equipment .
•Trademarks
11 •Patents