M.B.

Course content

Introduction session: Around Accounting and Finance

Chapter 1: Financial Statement Analysis

Chapter 2: Investment Decisions Process

Chapter 3: Management Control System

Chapter 4: Fundamentals of Auditing

Conclusion session: Perspectives of A.C.A.

 M.B.

Introduction
session
Around Accounting and
Business
 M.B.

“ Accounting is the process of

identifying, recording, summarizing,
and reporting in monetary terms
informations about businesses .

”
 Users of accounting informations M.B.

Internal users External users

01
Top, middle
and lower 04 Investors and
prospective
managers owners

02 Owners 05 Creditors
and lenders

06
Government

03 Employees and tax

authorities
Financial accounting Vs Cost Accounting M.B.

Elements Financial accounting Cost accounting

Purpose Communication of financial Decision making
position
Requirement Mandatory Optional
Primary External: Investors, regulators Managers and decision
audience and tax authorities makers
Focus Past transactions Past and actual
information for future
decisions
Period Period of reporting of When required
financial accounting is at the
end of financial year.
Expenses By nature By destination
classification
Scope Company wide Per segment, per
product
 M.B.
Chapter 1: Financial statement
analysis
 What is a business M.B.

transaction?

A business transaction is an economic event or an

interchange of goods or services between two or more
parties. This event changes directly an entity’s financial
condition and affects its results of operations.
 M.B.
The Account

Financial records of an organization that register all financial

transactions, each individual account is stored in the general ledger and
used to prepare the financial statements at the end of an accounting
period.
Each account has:

Title
Left side Right side

Debit Credit

The alignment of these parts resembles the letter T and therefore, the
account form is called a T account
 Double entry system M.B.
(general ledger)

The double-entry system of accounting or bookkeeping means that

for every business transaction, amounts must be recorded in a
minimum of two accounts. The double-entry system also requires that
for all transactions, the amounts entered as debits must be equal to the
amounts entered as credits.

For each transaction

Total debits Total credit

=
Example: Your company writes monthly a check of $1000 to a house
owner in order to pay its rent.
 The cash account is reduced by $1000

 The rent expense account is increased by $1000

 Double entry system (Journal) M.B.

Example : Company A was incorporated on January 1, 2020 with an initial capital of

5,000 shares of common stock having $20 par value. During the first month of its
operations, the company engaged in the following transactions:

- On January 4, the company purchases office supplies costing 17,600 dhs on credit.

- On January 18, the company provided 54 100 dhs worth of services to its
customers.

Date Account Debit Credit

Office supplies 17 600
January 4 Accounts payables 17 600
Purchase supplies on account

Date Account Debit Credit

Accounts receivables 54 100
January 18 Service revenues 54 100
Sales of services
 M.B.
Financial statements

" Financial statements are written records that convey the

business activities and the financial performance of a company
by summerizing financial transactions over a designated
period of time."
 M.B.
Balance sheet

The balance sheet is a snapshot of the financial position of

an organization on a particular point in time, usually
prepared at the end of the year.

Assets = Liabilities + Stockholders Equity

What the company owns • Liabilities: How the ownership of

assets was financed (debts)
• Equity = owners capital
 M.B.
Classification of assets

Fixed Current Tangible Intangible Fictitious

assets assets assets assets assets

Long term assets Short term Tangible assets Assets which The assets which
such as lands assets which can are assets which cannot be seen, are valueless but
and buildings . be converted we can touch, touched and are shown in the
Their value easily into cash. see and feel. All have no physical financial
reduces over a Inventories, fixed assets are existence. statements until
period of time government tangible. Goodwiil, they are written
considering the bonds, trade Machinery, Cash patents and off. Preliminary
depreciation. receivables etc at bank, Stocks. trademarks expenses
 M.B.

Classification of liabilities
 Balance sheet sample in
M.B.

thousands
 M.B.
Income statement

" An income statement is one of the three important financial

statements used for reporting a company's financial
performance over a specific accounting period. Also known
as the profit and loss statement , the income statement
primarily focuses on the company’s revenues and expenses."

Examples of Revenue Accounts Examples of Expense Accounts

 Sales
 Service revenue
 Interest revenue
 Dividend revenue
 Rent revenue
 Cost of goods sold
 Depreciation expense
 Interest expense
 Rent expense
 Salary expense
 M.B.
Single-Step Income Statement

The single-step statement Income Statement (in thousands)

consists of just two groupings: Revenues:
Sales $ 285 000
Interest revenue 17 000
Total revenue 302 000
Revenues Single-
Expenses:
Cost of goods sold 149 000
Expenses Step Advertising expense 10 000
Depreciation expense 43 000
Net Income Interest expense 21 000
Income tax expense 24 000
Total expenses 247 000
No distinction between Operating
Net income $ 55 000
and Non-operating categories.

Chapter
4-17
 Ex 1: Prepare an income Single-Step Format M.B.

statement from the data

below. Income Statement
For the year ended Dec. 31, 2019
Administrative expense: Revenues:
Officers' salaries $ 4 900 Sales $ 96 500
Depreciation 3 960 Rental revenue 17 230
Cost of goods sold 63 570 Total revenues 113 730
Rental revenue 17 230 Expenses:
Selling expense: Cost of goods sold 63 570
Transportation-out 2 690 Selling expense 17 150
Sales commissions 7 980 Administrative expense 8 860
Depreciation 6 480 Interest expense 1 860
Sales 96 500 Income tax expense 7 580
Income tax expense 7 580 Total expenses 99 020
Interest expense 1 860 Net income $ 14 710

Chapter
4-18
 M.B.
Multiple-Step Income Statement
Income Statement (in thousands)
The presentation Sales $ 285 000
divides information into Cost of goods sold 149 000
Gross profit 136 000
major sections.
Operating expenses:
Advertising expense 10 000
1. Operating Section Depreciation expense 43 000
Total operating expense 53 000
Income from operations 83 000
Other revenue (expense):
2. Non-operating Interest revenue 17 000
Section Interest expense (21 000)
Total other (4 000)
Income before taxes 79 000
Income tax expense 24 000
Net income $ 55 000

Chapter
4-19
 M.B.
Multiple-Step Income Statement

Sales
– Cost of goods sold
= Gross profit
Operating expenses:
– Selling expenses
– General and Four
administrative expenses important
= Income from operations subtotals
+/– Other revenues and expenses
= Income before taxes
– Income tax expense
= Net income
Chapter
4-20
 M.B.
Ex 2: Prepare an income Multiple-Step Format
statement from the data
below. Income Statement
For the year ended Dec. 31, 2019
Administrative expense: Sales $ 96 500
Officers' salaries $ 4 900 Cost of goods sold 63 750
Depreciation 3 960 Gross profit 32 750
Cost of goods sold 63 750 Operating Expenses:
Rental revenue 17 230 Selling expense 17 150
Selling expense: Administrative expense 8 860
Transportation-out 2 690 Total operating expenses 26 010
Sales commissions 7 980 Income from operations 6 740
Depreciation 6 480 Other revenue (expense):
Sales 96 500 Rental revenue 17 230
Income tax expense 7 580 Interest expense (1 860)
Interest expense 1 860 Total other 15 370
Income before tax 22 110
Income tax expense 7 580
Chapter Net income $ 14 530
4-21
 Income statement: Cost of goods sold M.B.

" Cost of goods sold (COGS) is the cost of acquiring or

manufacturing the products that a company sells during a period,
including the direct cost of labor, materials and manufacturing
overhead. The cost of goods sold is reported on the income
statement and should be viewed as an expense.”
 M.B.

" The Statement of Cash Flows (also referred to as the cash flow
statement) is one of the three key financial statements that report
the cash generated and spent during a specific period of time. The
statement of cash flows acts as a bridge between the income
statement and balance sheet by showing how money moved in and
out of the business."

• 3 sections reporting cash flows from different activities

– Cash flows from operating activities
– Cash flows from investing activities
– Cash flows from financing activities
 M.B.
Cash flows from operating activities

• The principal revenue-generating business activities of an

organization (any cash flows from current assets and current
liabilities).

Inflows Outflows
 Cash collected from  Cash paid to employees
customers and suppliers
 Sale proceeds from
trading securities  Cash paid to creditors
(Short period)
 Taxes, Royalties, VAT  Fees and interests paid
and dividends received
 M.B.
Cash flows from investing activities

• Investing activities relate to the acquisition and disposal of

long-term tangible and intangible assets and other
investments.
Inflows Outflows
 Sale proceeds from fixed  Cash used for capital
assets and marketable expenditures
securities
 Payment for business
 Sale proceeds from equity acquisitions or joint ventures
investments (Long term)
 Lending money
 Sale proceeds from
divestitures
 M.B.
Cash flows from financing activities

• Cash Flow from financing activities result from changes in the size and
composition of the equity capital or borrowings of the entity. It includes
the sources of cash from investors or banks, as well as the uses of cash
paid to shareholders.

Inflows Outflows
 Proceeds from issuing  Principal paid on debt
stocks

 Borrowing long and short  Payments to reacquire stocks

term loans
 Dividends paid to shareholders
 Donor contributions