Introduction to

Accounting, Finance and

Governance

Prof. dr. Ine Umans

 Organization
Team
 Prof. dr. Sigrid Vandemaele
 Prof. dr. Ine Umans

Classes
 On-campus
 Mix of theory and practice
 Self-study
 Accounting, Finance and Governance
 Be prepared at all times!
 Organization
Book Blackboard
 Slides
 Exercises
 Additional material
 …

Older versions are allowed, but you are

responsible for differences with the 10th edition.
 Evaluation
Written exam
 Closed book
 Open questions
Introduction to Accounting

Statement of
Income statement
financial position
(Chapter 3)
(Chapter 2)

Statement of cash Financial ratios

flows (Chapter 6) (Chapter 7)
 CHAPTER 2
Measuring and reporting financial position
 The major financial statements – an
overview
• What cash movements took place?
• Information about the cash inflows and outflows from
Statement of cash flows operating, financing and investing activities during an
accounting period

• How much wealth was generated?

Income statement • Profit and loss account
• Results of operations for the accounting period

• What is the accumulated wealth of the business at the

Statement of financial end of the period and what form does it take?
position • Balance sheet
• Financial position of a firm on a particular date
 Example 2.1
[Book p. 42-44]
 Example 2.1
Statement of cash flows for Monday Income statement for Monday
Cash introduced by Paul 40 Sales revenue 45
Cash from sales of wrapping paper 45 Cost of goods sold (3/4 of 40) (30)
Cash paid to buy wrapping paper (40) Profit 15
Closing balance of cash 45
Statement of financial position at Monday
evening
Equity 55
Cash (closing balance) 45
Inventories (1/4 of 40) 10
Total assets 55
The relationship between the major
financial statements
 The statement of financial position

ASSETS CLAIMS
= resource held by a business (tangible = obligation of the business to provide
or intangible) cash or some other form of benefit to
an outside partyx
Include if
 Economic resource
 Equity = claim of the owner(s) against
the business
 Under the control of the business
 Liabilities = claim of other parties
 Capable of measurement in monetary apart from the owner(s)
terms
 The statement of financial postion

ASSETS CLAIMS
Examples
 Buildings
 Equipment
 Patents
 Inventories
 Cash
 …
The accounting equation
 Example 2.2
[Book p. 50-52]
 Example 2.2
Statement of financial position as at 1 March
Assets
Cash at bank 20
Total assets 20

Equity and liabilities

Equity 6
Liabilities 14
Total equity and liabilities 20
 Example 2.2
Statement of financial position as at 1 March
Assets
Cash at bank 15
Motor van 5
Total assets 20

Equity and liabilities

Equity 6
Liabilities 14
Total equity and liabilities 20
 Example 2.2
Statement of financial position as at 1 March
Assets
Cash at bank 15
Motor van 5
Inventories 3
Total assets 23

Equity and liabilities

Equity 6
Liabilities: borrowing 14
Liabilities: trade payable 3
Total equity and liabilities 23
 The effect of trading transactions on the
accounting equation

The accounting equation can be extended as follows:

 The classification of assets

CURRENT ASSETS NON-CURRENT ASSETS

 Held for sale or consumption during  Held for long-term operations
the business’s normal operating cycle
 Expected to be sold within the next
year
 Held principally for trading
 Cash, or near cash such as easily
marketable, short-term investments
The circulating nature of current assets
 The classification of claims

CURRENT LIABILITIES NON-CURRENT LIABILITIES

 Expected to be settled within the  Longer-term liabilities
business’s normal operating cycle
 Exist principally as a result of trading
 Due to be settled within the next year
 No right to defer settlement beyond a
year after the date of the relevant
statement of financial position
The equation for the standard layout
Layout: Example 2.3
Statement of financial position as at 31
December 2018
Layout: Example 2.3
Statement of financial position as at 31
December 2018
 Accounting conventions

Business entity Historic cost Prudence

Going concern Dual aspect

 Money measurement
Key measurement problems

Goodwill and brands

Human resources

Monetary stability
 Valuing assets
Initially show non-current assets at historic costs

Fair values may be used if they can be reliably obtained

Non-current assets with finite lives shown at cost (or fair value) less
accumulated depreciation = carrying amount or net book value

Non-current assets with impaired value written down to recoverable amount

(results from shift in market conditions or technological obsolescence)

Inventories shown at lower of cost or net realisable value

Use of the statement of financial position
 Exercises
 Exercise 2.4 p. 80
 Exercise 2.5 p. 80 (self study assignment)
 Exercise 2.7 p. 81
 Exercise 2.4
Statement of financial position at the end of each day
1 March 2 March 3 March 4 March 5 March 6 March
Assets

Equity and
liabilities
 Exercise 2.5
 Self study assignment
 Solution will be put on Blackboard
 Exercise 2.7
Start Adjustments End
Assets
Property 145 000
Furniture & Fittings 63 000
Motor van
Inventories 28 000
Trade receivables 33 000
Cash
Total assets 269 000
Equity and liabilities
Equity 203 000
Short-term 43 000
borrowing
Trade payables 23 000
Total equity and liabilities 269 000
 CHAPTER 2
Measuring and reporting financial position
 To do
Post-processing Class 1
 Read Chapter 1 (i.e., introduction to accounting and finance)
 Read and study Chapter 2
 Exercises
 2.5: Self study assignment
 Additional exercises are provided in the book (including the solutions)