Important terms, concepts, notes, formulae and structures so far in CFA (corporate financial accounting

Going back now and remembering the new things I have learned so far in CFA I feel happy with the progress, so what are the things that make up this progress? They are all the important terms, formulae, structures, concepts and key take away.

1. The language of business is accounting
2. It is therefore important to know the internal dynamics of business before going into accounting
3. A business should have a vision (where they want to be in the nearest future) and a mission (the actions or goals to be achieved in order to actualize the vision)
4. So, Business owners or long-term investors hire managers to interpret the vision into a mission to measure and manage these goals and prepare a game (professionally know as strategy) and structure to achieve them because anything that cannot be measured cannot be managed
5. Strategy is a plan that states the current position, destination and strategic actions to get there.
6. Now a strategy is as good as the information backing hence it is based on what you know and your knowledge on the factors that affect your unique business model or industry so in addition managers should be aware of current and global events.
7. to start a business, you need 3 things: feasibility studies, a plan for sustainable or repeatable customer base and funds.
8. Funding raised for a business could either be debt or equity and it is used to buy assets and these assets are used to carry out operations and these operations generate revenue.
9. Every decision we take as managers has its financial implication and that is why you need accountants: they capture all required transactions and prepare financial statements that show all financial positions of a Business which a manger can now use to see the financial implications of his/her/their decisions.
10. Objectivity concept in accounting: An accountant will only capture or record a transaction when he/she has the source document.
11. In Business, Don’t hire who you cannot fire, fast growing business may have bad financial implications, to share the financial risk in business is to share control as well, funding is for scaling a working business, there are kinds of business space: red ocean where many competitors already exist and Blue ocean: when few or no competitors exist, performance of a business is based on quality of decisions and it is to achieve the primary objectives of any business: to make profit and you must be able to measure it.
12. From number 8, when cost of sales and expenses is subtracted from revenue we have the profit and this profit can be used to pay dividend or kept as retained earnings AKA reserves which is retained back into the equity of a business. Again, all these need to be captured to show a financial summary of the business and shoe the financial implications of the mangers
13. This financial summary is called financial report which contains the financial statements
14. These financial statements are balance sheet, income statement, cashflow statement
15. Financial statements are prepared by the accounting department with assistance of the finance department and sometimes reviewed by external auditors but who is Legally responsible for the financial reports? The directors or managers of the company and this financial report is for all business but publication is only for public companies and the IFRS (international financial reporting standards) provided the standards for preparing these statements.
16. Now these statements start from somewhere; source documents and they are used to record these transactions in a journal, and from there to a ledger (AKA your books of accounting, AKA charts of accounts) which shows your assets, liabilities equity and revenue accounts.
17. The aim of these practices is to show transparency (true and fair operations) for their investors/shareholders.
18.  There is a part of the financial report called auditors report which could be qualified (the statement is not free from material misstatement)
19. The concept of materiality: the materiality of a item is based on its size e.g. The clock is a company may be an asset but will not be included in the books as an asset because it is not material.
20. Going concern: From the report Accounts or auditors will assume if a business is a going concern or not (if from the statement they foresee a possibility that the business might fail and end.
21. Another concept in accounting is separate entity: the name of the entity incurring the cost is what should be recorded in source documents (receipt or invoices).
22. There are 5 components of an income statement: Assets, liabilities, equity, revenue, expenses. which I discussed in former post.

TO-BE-CONTINUED (ELEMENTS OF A FINANCIAL STATEMENT).