Wonder why we have a rearview mirror in our cars even though we drive forward? Of course, it is to have sneak peeks at the coming traffic. It is also relevant while in reverse gear. When moving forward, it is okay to occasionally look at where you are coming from to build confidence in your progress. In our last class in corporate financial accounting, we reviewed what we studied in the past and its relevance in the future.
We looked back to where we started – the five types of accounting statements. They are: the income statement, cash flow statement, balance sheet, statement of change in equity, and notes to the financial accounts. The statement of financial position shows the asset, liability, and owner’s equity of a business at a particular date. The other statements are produced over a period, typically a year. The statement of change in equity reports the changes in the company equity over a period. The changes generally reflected are: earned profits, dividends, the inflow of equity, withdrawal of equity, and net loss. The statement of profit or loss summarizes the revenue and expenses incurred during a specified period. The statement of cash flow provides us with information regarding all cash inflows from business transactions as well as investment sources and cash outflows to pay for business events and investments during a period. The notes to the accounts provide us with further explanations that were not captured in the other four statements.
We considered an accounting formula – Assets = Liabilities + Owner’s Equity. We saw that assets could be further divided into fixed and current accounts. Liabilities are classified into current and non-current liabilities. The owner’s equity can be further classified into share capital and reserves. Liquidity and solvency were other terms we considered – the former being the ability to meet short-term financial obligations and the latter being the ability to meet long-term obligations. We analyzed some ratios in that regard using horizontal and vertical analysis. To wrap up the class, we had class work that was divided across the various groups and presented in class. We looked at recording transactions into the balance sheet using the principle of double entry.
Currently, we have an ongoing project which would form about thirty percent of our grades. We looked briefly at the progress each group had made. We were also admonished not to lose sight of the final exams which are barely a month from today. The impact of the group assignment across each person varied according to their skill set. However, one thing was certain; in each group, the strong always carried the weak along and improved their strength. One testimony from a colleague was rather outstanding. He has been in a management role for over ten years and was not interested in the financials but within the space of four months in this class, he is now confident in his ability and proactively requests for financial updates from the finance department.
What then was my take home from today’s class? I spotted some knowledge gaps which I needed to fill. It is not enough to proactively listen and engage in class, it is more profitable to revisit your past notes and put what you have learned into daily practice. This is what makes you a master in your chosen field.
Life, Love, and Life
#CFA #MMBA4
