To some, Corporate Financial Accounting is for Accountants, “why should I bother myself when I can easily hire one?” you may ask, but wait a bit, let us consider reasons why this knowledge is important for everyone.
KEY USERS OF COTPORATE FINANCIAL ACCOUNTING INFORMATION:
- As a manager or potential manager, you make important business decisions using corporate financial accounting information, hence, you need to at least understand the fundamentals of the information you are using.
- Investors either current or potential use corporate financial accounting information. An investor is concerned about whether to invest in a Company or not, he considers Return, Risk and Time on his investments.
- Lenders: No one will lend to someone they are not sure will be able to make repayment. Therefore, Banks and other lending organizations often rely of the corporate financial information to determine the credibility of the lender.
- Employees: If you are an employee, you are surely concerned about your salaries, bonuses and any other compensation that may be tied to the profitability of the company. The Financial Accounts of the Company gives you an opportunity to know the financial condition of your company and based on the profitability, you can make better negotiations on your compensation.
- Regulators and tax authorities: Regulators need the financial information of companies to be able to give better policies. The tax authorities use the financial accounting information to determine the amount of taxes due for payment to the governmental authorities
- Legal Institutions: Legal institutions use financial accounting information to know what fines should be charged.
You no doubt fall into one or more of the above-named users of financial information, if so, it is obvious that the earlier you start learning Corporate Financial Accounting the better for your decision making and maybe the brighter your future.
You sure don’t need to become an accountant before you can effectively understand the fundamentals of Corporate Financial Accounting. To get you started, the management of Lagos Business School have made Corporate Financial Accounting one of the courses to be taken in the very first semester of your first year.
What are we really concerned about as mere users of Corporate Financial Accounting information?
We are concerned about the Financial Statements, we need to familiarize ourselves with the contents, know how to analyze and interpret them for effective financial decisions.
There are basically four financial statements and a Note to the Accounts.
These are as follows:
- Statement of Financial position also known as Balance Sheet. It shows the financial position of a Company as at a particular day. Its contents are Assets, Liabilities and Owners Equity. Where the Assets equals the Liabilities and Owners’ Equity that is Assets = Liabilities + Owners Equity. This equation is called Accounting Equation or Business Equation
- Statement of Profit or Loss and other Comprehensive Income. This statement shows the profit or loss of a Company for a period. It shows the revenue, sales or turnover, cost of sales and operating expenses.
- Statement of change in Equity. This shows how equity has grown often driven by undistributed profit or retained earnings
- Statement of Cash flows
- Notes to the Accounts.