BASIC ELEMENT OF FINANCIAL ACCOUNTING

Corporate financial accounting is a course i’m finding interesting already, probably because of the faculty taking the course. A bit tasking and confusing at the beginning, probably because i never had any prior knowledge of accounting, but at least i’m following the class well now and i look forward to the next session at the end of one.

Let me share with you in a brief form the simplest definition for the basic elements of accounting, feel free to comment and share your opinion about the topic, if you have a better view for the definitions, you can also share yours.

BASIC ELEMENT OF CORPORATE FINANCIAL ACCOUNTING

The basic elements of accounting are:

ASSETS:  Are the resources owned by the business, they are of benefit to the entity, and they are expected to yield in the future. Assets can be classified into current and non-current assets, based on the expected period of use. Examples are Property, goodwill, Plant and equipment etc.

LIABILITIES: Are amount payable to another entity it represent on outflow from the business. Liabilities can either be current or non- current depending on when it has to be settled, current liabilities are to be paid within a year, while non-current Liabilities are not to be paid within a year, examples are, Salary, Bank loan, Taxes etc.

OWNER’S EQUITY: Is the amount the owners of the company invested in the business, including any remaining retained earnings.

It can also be referred to as Net assets

REVENUE:  is all generated cash inflow or benefit by the business during a specific period. A company can have several sources of revenue according to its business type.

EXPENSES: is all incurred outflow by the business during specific period.

PROFIT OR LOSS STATEMENT: describe a business net income over a specific period, it invocate if a company is profiting or at a loss over a period of time reviewed, it is a function of the business revenue and expenditure at the period renewed; Most times it’s either an annual or quarterly statement, the details of the statement do include previous data to be compared with.

STATEMENT OF FINANCIAL POSITION: Can also be referred to as the balance sheet, it usually shows the company’s financial position at a special date renewed. It is a reflection of the business assets, liabilities and owner’s equity

STATEMENT OF CASH FLOW: Usually shows the money inflow and outflow of the business over a period of time it helps stakeholder to understand the sources of cash and how cash are been utilized.

Statement of change in Equity: Usually shows how the company’s equity moves/changes over a period of time. The profit or loss derived from the profit or loss Statement is added to the opening retained earnings, it also reflects shares bought and sold and payment of dividends.

Notes to the Accounts: Notes to the financial statements are compulsory to disclose the assumptions, basis for accounting, rules used to prepare the documents. It also reports how the calculations were done. This helps the financial statement user to have a better understanding and necessary details needs for an in-depth analysis.