Corporate financial Accounting is one of the four courses the MEMBA 12 students are required to complete in the first semester. As a chartered Accountant, most of the concepts were not new but were more of a reminder on the fundamentals learnt at the start of my journey as a Chartered Accountant.
The faculty discussed the concepts and standards that guide the preparation of financial statements. Some of the concepts discussed are listed below:
- Duality principle: Every transaction has a dual effect, for every debit, there would be a credit transaction which must be recognized in one of the elements of the financial statements.
- Materiality principle: An item is said to be material if its omission or misstatement would influence the decision of the user of a financial statement.
- Comparability principle: Financial statements for one period must be comparable to the preceding period to make it easy for the users of the financials statement to be able to compare information from one period to another.
- Matching principle: This concept requires revenue to be recognized with the accompanying expenses that was incurred to generate the revenue.
The faculty also explained the different elements of the financial statement, some of which I have been listed below:
- Statement of Financial Position – This is also called the Balance sheet; it is a snapshot of the Company at a particular point in time. It comprises of Assets, Lability and Equity.
- Statement of Profit or Loss and Other Comprehensive Income – this shows the income generated and expenses incurred for a particular period which could be monthly, quarterly, or annually. It shows the company’s performance for that period.
- Statement of Cash Flow – This financial statement shows how much cash a company makes form its operations and spends in a period. It records the cash inflows and outflows of the company, and it has three main segments based on the main categories of a company’s activities, operating activities, financing activities, and investing activities.
- Statement of Changes in Equity- This shows the changes in a company’s equity during a given period. It provides information on the company’s interactions with its owners (shareholders) which can be in form of contributions made by shareholders or dividend received by shareholders at a given date.
- Assets – This can be tangible (property, plant, and equipment) or intangible (patent and copy rights, prepayments) which are resources controlled by the entity and used to generate revenue.
- Liability – Are the Company obligation to third parties like suppliers, bankers, and governments. It usually requires an outflow of resources to settle.
- Equity – This is the residual interest in the Company after deducting it assets from liabilities.
- Revenue generating Assets – These are assets that the company uses to generate income and they include investment property, bonds, equities etc.
- Current and Non-Current Assets – An asset is classified as current or non-current based on its intended use.
The above teachings have rekindled my love for financial reporting, and I look forward to learning so much more in the days ahead.
