Transaction analysis begins

My classmates and I recently had a session in the Corporate Financial Accounting course and it turned out to be another interesting and engaging session in the Corporate Financial Accounting course. The topic was new, contrary to my expectations for a continuation of the topic we learned in the previous class.

As was the normal practice of the course facilitator, we began the session by recalling what we had learned from the previous class. Afterward, the course facilitator introduced a new topic. It was in this class that I learned that there are two parts to the Corporate Financial Accounting course. These are:

1. Understanding financial statements
2. Understanding and analyzing the structure of financial statements.

I learned that the previous sessions we had taken, focused on the first part of the course – understanding financial statements. The new session we were on as well as subsequent sessions will focus on the second part of the course – understanding and analyzing the structure of financial statements.

While we learned the first part of the course, we looked at already prepared financial statements. Now we would learn to structure financial statements and the components that make up the structure of each financial statement. This is a new knowledge and skill that I would be happy have.

I learned that the first step to understanding the structure of financial statements is understanding the concept of events. Every company performs business activities and interactions which you can call events. We call some events transactions. All transactions are events but not all events are transactions. I learned that you can call an event a transaction when it impacts a company financially. Therefore an event that has a financial impact which a company can measure is a transaction.

At first, I did not quite understand the concept until the faculty gave some examples to further explain it. The explanations aided my comprehension.

To help you understand the concept, here are some examples of a transaction:

1. My friends and I decided to start a company and invest the sum of One million Naira each into the business
   
2. We decided to purchase a plot of land for the business for the sum of One million Five hundred thousand Naira.

The above examples could have been an event if they had no financial impact.

Let us look at the following sentence as an example of an event:

Company A decides to contract a vendor to supply some office equipment.

Company A cannot document this event in their financial records until the event has a financial input. Thus, company A must initiate a business with the vendor and agree on the costs first. Afterwards, they can regard the business operation as a transaction and document it in their financial records.

I also learned from the class that every transaction has two sides:

1. You give something
2. You receive something

An accounting manager records the two sides of the transaction in his accounting worksheet or journal. In addition to this, the accounting manager must be able to measure the financial impact of the event on the business before he records it as a transaction.

At the end of the class, the faculty emphasized the need for everyone to properly understand what we had just learned. The session was the foundation for the other lessons we were going to learn. Hence, it was essential that we got the introductory points rights or it might affect our understanding of the rest of the topics.

I understood the concept of transaction and I made sure that I took down some points to aid my retention. The faculty also helped to make my understanding easier. I look forward to learning more on the topic.

Transaction analysis begins…

#MMBA 3