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Lecture - 2: Financial Reporting and Accounting
Lecture - 2: Financial Reporting and Accounting
and Accounting
Project Financial Management
Learning Outcomes
• Accounting
• Financial Reporting
• Financial Statements
• Balance Sheet
• Income Statement
• Accounting is one of the key functions for almost any business; it may
be handled by a bookkeeper and accountant at small firms or by
sizable finance departments with dozens of employees at large
companies.
Financial Reporting
• Financial reporting is the process of producing
statements that disclose an organization's financial status
to management, investors and the government
• Income statement
– An income statement or statement of comprehensive
income, statement of revenue &
expense, P&L or profit and loss report, reports on a
company's income, expenses, and profits over a period of
time. A profit and loss statement provides information on
the operation of the enterprise. These include sales and
the various expenses incurred during the stated period.
Types of Financial Statements
• Cash Flow Statement
– A cash flow statement reports on a company's cash
flow activities, particularly
– Its operating, investing and financing activities.
– Ideally, analysts want to see that a company can pay current liabilities, which
are due within a year, with cash. Some examples of short-term liabilities
include payroll expenses and accounts payable, which includes money owed to
vendors, monthly utilities, and similar expenses. In contrast, analysts want to
see that long-term liabilities can be paid with assets derived from future
earnings or financing transactions. Debt is not the only long-term liability
companies incur. Items like rent, payroll and pension obligations can also be
listed under long-term liabilities.
Accounts Payable
• Accounts payable (AP) is an accounting entry that
represents an entity's obligation to pay off a short-term
debt to its creditors. In balance sheets, the accounts
payable entry appears under the heading current
liabilities.
Bank
1 1,000,000 1,000,000
Purchase of Rights
• Purchase of Rights
• Khan Autos hired premises for workshop at a monthly
rent of Rs.5,000. The landlord asked for two-year advance
of Rs.120,000.
Assets = Khan’s claim
1 1,000,000 1,000,000
(120,000) 120,000
(80,000) 80,000
Zahid Capital
as at Jan. 1 1,100,000
as at Jan. 31 1,600,000
First in Last in
First out First out Average
Sales 1,200,000 1,200,000 1,200,000
Less Cost of Goods Sold
Cost of goods sold (800,000) (850,000) (825,000)
Profit 400,000 350,000 375,000
Value of Closing Stock 300,000 250,000 275,000