10 KEY TERMS ON CORPORATE FINANCIAL ACCOUNTING.
- Who’s an investor: He is a person who aims to put funds for financial gain. he takes the decision to invest or not to expect a return of their funds and they are also aware of the risk. It’s also time bound. Corporate financial accounting is primarily focused on investors
Component in financial statement
- Statement of financial position (Balance Sheet)
- Profit or loss Statement (Income Statement)
- Statement of cash flow
- Statement of Changes in Equity +1(Notes to the Financial Statement)
- Resources are called Assets. And are categorized into Current and Non-Current Asset.
- They are 2 sources of resources
- Debt Finance and Equity Finance
- The fundamental accounting equation; Asset= Liability + Owners Equity (Balance sheet)
- Financial statement is usually “as at a date” for the year ended 31st December 2022 while cashflow is presented for the year. ended.
- To get a profit or loss Revenue must be higher or lower:
- Accomplishment – Effort= Gain or Loss.
- This also means Profit or Loss = Revenue – Expenses.
- Equity consists of 3 components
- Share Capital
- Share Premium
- Retained Earnings.
- In other to get the percentage and Naira change of a year.
- Current year – Prior year (Base Year) = change in a year.
- Change in a year/asset and multiply by 100. This can be further explained as Difference/Asset * 100/1= % change in Naira of a year.
- L/a*100 = L/OE * 100 = Change in % of prior year.
- Corporate financial Accounting is sprint between 2 Statement component:
- Synthesis: The preparation of financial statement.
- Analysis: Financial Statement Analysis: This is known as the tearing apart, breaking down, of financial statement.
There are 2 users of financial statement.
- Internal Users (Managers, Finance, Human Resources Marketing): it’s used for Planning evaluating and controlling company operations.
- External Users (Investors, Creditors Government: Taxes): it’s used for Assessing past performance and current financial position and making predictions about the future profitability of the company as well as evaluating the effectiveness of management.
There are 5 methods of financial statement analysis
- Horizontal analysis: Its Looking both left and right one account at a time between 2 years trying to make the difference. 2021 & 2020
- Vertical Analysis: Its calculating for a year at a time looking at a figure one at a time. (2020).
- Common-size Statement: it brings figures to make percentage comparison and no dollar absolute amount.
- Trend Percentages: show changes overtime in each financial statement item. When we have more than 2years and want to see the general direction which a company is doing. Graph (sales in the last 5 years of a company)
- Ratio Analysis: comparison of 2 figures e.g., percentage of girls to the total class. (Numerator/Denominator).
- Total fixed Cost and Unit Fixed Cost. Total fixed cost is that whose total remains flat irrespective of the activity level.it doesn’t change with the total activity level. While unit fixed cost is the fixed cost per unit is reducing as the as the activity level increases. (UFC= TFC/AL). Village doctor clinic
- Total variable Cost and Unit Variable cost: Total variable cost changes with the change in activity level.it moves on the same level with the activity level. While the unit variable cost is flat irrespective of the change in activity level. It’s the same with the activity level. (UVC=TVC/AL). (TC= TFC+TVC) (UC= UFC+UVC). Breakeven point is where the total revenue and total cost intersect. Margin of sales can be measured in unit, Naira, or Percentage (%).
MOS(NGN)=Target sales – Breakeven point sales
MOS (%) = TS- BEP/TS *100
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