The CFA(corporate financial accounting) poses as one of the hardest course for non-consultants(people who have no background or practice in accounting or finance or economics or corporate business management or development) in the MBA program being a professional practice that people spend years to get accustomed to but with the help of our facilitator in is a better situation because he spent more time and did he due diligence in explaining the pillars and building blocks in accounting. I my second post I shared how our facilitator explained business structure with the assistance of a comparison of an everyday road side cook’s business to standard corporate organization. So here, I will talk on that structure as the foundation for understanding accounting: business process and structure in a business whether small scale, medium or large scale.
Now our facilitator said: to start a business, you need funds. Business here would mean the start to finish of all actions, transactions and operation that would bring revenue from the sales of a product or service. So, to start a business you need funds and that fund would be used to by assets that would be used to carry out operations and the aim of these operations would be to generate revenue and this revenue is not the profit. The profit would be the what is left after all the cost of doing business and all expenses have been deducted from the revenue. Then and only then can someone say they have made profit. This is of course if they did not make a loss which is the financial state at the end of a business. So, again just to recap: fund is used to start a business, the fund is used to by assets needed for the business, the assets are used for operations, the operations generate revenue and then cost of sales(cost of materials or services used to make the product or offer the service) is deducted to get the gross profit and then expenses are deducted from the gross profit to get what is called profit before tax then finally tax is deducted to get profit after tax. This profit after tax is the actual profit a business has made. Now with this profit, the business or business owner can choose to re-invest into the business by buying assets which could be tangible or intangible. Which brings us to assets; what are they? And how do we differentiate tangible assets from intangible assets?
Assets are resources with economic value that an individual, corporation, or country controls and is expected to provide future benefit to the who controls or owns it, e.g. property. Now an asset can be tangible or intangible. From the word tangible, you may be thinking an asset that is physical: you can touch and even though it aligns with its actual definition, an asset I tangible based on the time frame. So an asset that would asset is regarded as tangible if the it take 90 days or less to convert to cash e.g. stock/shares while an assets that would take longer to liquidate (sell or convert to cash) is regarded as intangible. Would continue in the next post
