We started with Basic accounting to remind and prepare us for the course.
Accounting is the process of recording a company’s financial transactions for stakeholders’ use.
An average investor wants a return on his Investment and his main focus is on the Return, Risk and the company’s Timeline.
The objective of the course is to learn as a manager, how to provide accounting information and to advise a potential investor putting his needs into consideration.
It involves analysing, summarizing and reporting these transactions to meet the stakeholders’ needs.
We have five financial statements namely:
- A statement of financial position
- A statement of Profit or loss and other comprehensive income
- A statement of cash flow
- A statement of change in Equity
- Notes to the accounts
Below are some of the few terms learnt so far, as this is just the beginning:
Cost, Revenue, Equity, Liabilities, Assets, Accounting equation.
Asset= Liability + Owners Equity
There are different methods of analysing financial statements. This is to make good sense of the components in the statements presented. They are listed below:
- Horizontal analysis– This is used to analyse the change in an account across 2 years.
This can be arrived at by getting the absolute figure of change and the percentage change. i.e.
Absolute change = Current year figure-Prior Year figure
Percentage Change = Absolute change x 100
Prior Year figure
2. Vertical analysis-This is used to find out the relative measure of each account in total ( a year to the total.)
This can be calculated as shown below:
The account figure is divided by The total figure (The significant total)
3. Common sizing-This is used to compare dissimilar sized entities’ financial statements. This can be calculated by comparing different ratios of the entities.
4. Trend percentages– This is used to measure changes in an account over a period of more than 2 years. All the currency figures in the financials are converted to percentages.
Diagrammatical presentation is usually used to show THE TREND
5. Ratio Analysis-This is used to provide information to the investors on Returns & Risks. Ratio analysis can be categorized into:
Liquidity ratio: This measures the ability of the company to pay its debt in the short term.
Equity ratio: This shows the relationship between debt and equity financing in a company.
My expectations at the end of this course are to be able to prepare the financial statements of any given company with ease as well as to analyse it to make good decisions. I strongly believe that my expectations will be met with the methods of teaching being used by the Facilitator.