Financial Accounting Made Easy

Oyinlola Somoye Written by Oyinlola Somoye · 2 min read >

What is Financial Accounting? Now it is very important to note every company has a story to tell, this story is usually outlined in their scheme. This story is explained using Corporate Financial Reports.

It is quite understandable that majority of us do not like anything that has to do with financial calculations. However, I have brought good news to you as you do not need to be an accountant to be able to interpret Corporate Financial Reports. I personally have my background in Law and I can tell you that Corporate Financial Accounting is very easy and simple to understand.

The first step to note is that by Law it is the responsibility of the Director to prepare the Financial Statements however, the accountant prepares it on his or her behalf. The Financial Statements in Nigeria are to be prepared in line with the International Financial Reporting Standard (IFRS) and also in line with other extant laws of the Federal Republic of Nigeria such as Central Bank of Nigeria Regulations (CBN) and The Companies and Allied Matters Act 2020 (CAMA).

There are Four (4) Basic Financial Statements:

  1. Statement of Financial Position
  2. Statement of Income or Loss Account
  3. Statement of Cash Flow
  4. Statement of Change in Equity

We also have the Notes to the Financial Statements which offers explanation about the Financial Statements.

Statement of Financial Position: This Financial Statement gives you a snapshot of the financial position of the company at a point in time. For example; As At a particular point in time. It is also called Balance Sheet.  A Balance Sheet must capture the Assets, Liability and Owner’s Equity. Hence, the accounting equation which states that: Assets = Liability + Owner’s Equity. It is important for you to note that your Assets must always equal Liability and Owner’s Equity. So when you are given a Balance Sheet that is one of the very important thing to look out for.

Statement of Profit or Loss Account: This Statement shows the operations of the company for a particular period of time. It is also called Income Statement. A company within a particular period of time would have made some accomplishments, these accomplishments are called Revenue, Turn Over, Profit, Sales or Gross Earning. The company must also have made some efforts, these efforts are called Expenses. Hence, the difference between your Revenue and Efforts is what gives you your Profit or Loss. Profit or Loss = Revenue – Expense.

Statement of Cash Flow: This is a financial statement that collate all cash and near cash transactions of a company. It includes all inflows and outflows of cash into a company. This Statement is usually captured for a period of time.

Statement of Change in Equity: Now, I need you to understand that those who have invested in a company, the shareholders at the end of the day need the company to be profitable and also want dividend on their shares. For example; if an investor bought a share for N10 per share for a period, At the end of that period, the share price ought to have increased which is called Capital Gain. Hence, Owner’s Equity= Capital Contributed + Earn Capital.

Users of the Financial Statements

There are various users of the Financial Statements

  1. Management: Management use financial statements to measure their performance, to know how well they are doing and to also aid their decision making.
  2. Customers: Customers use it to ensure the quality of goods are services offered.
  3. Government: Government use financial statements to enable it claim taxes and also ensure that the company is regulatory compliance.
  4. Investors: Investors use this financial statements to be sure of their return on investments
  5. Competitors: Competitors use your financial statements to study your company’s strategy
  6. Employee: They use the financial statement as a guide to be sure that their salaries would be paid.
  7. Lenders: Lenders want to know whether you can pay back

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