General

THE FUNDAMENTALS OF CORPORATE FINANCIAL ACCOUNTING.

Obiageli Chiaghanam Written by Obiageli Chiaghanam · 2 min read >

Accounting is the process of recording the financial transactions of an organization and this will involve the identification, measuring, recording, and communication of financial information. It is the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the result for the user of financial information for analysis, comparison, and decision-making. With the increasing awareness of the relevance of financial information, it is pertinent the organization understands some basic fundamental that pertains to the financial report of the organization for analysis and relevant decision-making.

Corporate financial accounting is a systematic accounting process based on frameworks and standards like IFRS, GAAP, etc as may be relevant to a specific organization in its jurisdiction, established and published for preparers of Financial accounts for uniformity in preparing and presenting the financial report of companies. Both users and preparers of these reports must understand its basic fundament to enhance their value, while the preparers are the reporting entity, the users include the public, government, and its agencies, management, employees, present and potential investors (Shareholder, Lenders, Creditors), etc.

The basic principle financial statements in the financial report include:

  1. The Statement of Financial Position: This is otherwise known as the balance sheet and it shows the position of the company or business as of the reporting date as will always be stated on it. It is usually presented in a comparative form for ease of analysis and understandability showing clearly the company’s position for the year under review and the preceding year.
    SOFP summarises the position or the total worth of the company in terms of its resources and how these resources have been funded as at the reporting date with the headings: Assets, splits into current and Non-current asset; Finance by: Shareholders fund and Liability; into a current and non-current liability.
    The company’s performance can also be seen clearly as it also warehouses the balances from other accounts being reported from the business. The balance sheet can be represented as A = L + OC where A = Assets; L = Liability; OC = Owners Equity. These ensure that the balance sheet is always balanced as an increase on the left side will reflect too as an increase on the right side of it.
  2. The Statement of Profit or Loss Account and Other Comprehensive Income: This is a statement that reports the overall operations of the business for the year under review showing the utilization in performance of the company resources and the income generated from the use of those resources.
    The operations are shown in the forms of revenue generated, its operating expense for the period, and the gains or net profit thereof from its ordinary course of business and other related business.
    The SOPL showing the company’s performance for the year is also reported in the comparative form to aid analysis and performance appraisal and review.
  3. The Statement of Cash flow: This statement is used to report in detail and showed separately the cash transaction for the period under review noting cash utilized under Operating, Investing, and Financing activities. It is summarized as cash brought down from the previous year; the cash generated for the current year; cash utilized for the period and the cash carried forward from the year under review.
    This statement gives an overview of cash utilization for the year and can also be reported in a comparative format.
  4. Statement of Changes in Equity: This is used to report changes that have occurred in the shareholder’s contribution showing in the form of an increase or decrease for the period under review.
    This is usually done for clarity and transparency regarding shareholder funds’ growth.
  5. The Notes to the account: This is primarily included in the report for transparency as presented and is used to include further details that may require disclosure in line with the reporting framework and other figures as it appears in the report where necessary.

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