A COMPLETE EXECUTIVE

As an executive, having a grasp or an idea of processes and functions of various departments within an organization is very paramount. This makes an executive invaluable within an organization because there will always be something to bring to the table when discussions and conversations arise on different subject matters. My experience so far at LBS has exposed the importance of having a vast knowledge of things, and participants have been tailored in that line.

One important knowledge an executive ought to have and grasp well is that of accounting and financial management. An executive is expected to know how to read and interpret a financial statement in order to make certain strategic decisions, personally or on behalf of an organization. Apart from the ability to read and interpret financial statements, an executive is expected to at least know the process or even how to prepare a financial statement. This is one of the main takeaways from my Corporate Financial Accounting.

Let me briefly explain what a financial statement is and what it entails. A financial statement is a comprehensive report that states a company’s business activities and financial performance. It shows the health and earning potential of a business.

A financial statement has five basic elements:

Assets: These are resources controlled by a business as a result of past events and from which future economic benefits are expected to flow to the business.

Liabilities: This is a present obligation of the business arising from past events. The settlement of which is expected to result in an outflow from the business of resources embodying economic benefits.

Equity: This is the residual interest in the assets of the enterprise after deducting all liabilities.

Revenue/Income: This is represented by an increase in economic benefits during the accounting period in the form of inflow or enhancement of assets or decreases of liabilities that result in an increase in equity other than those relating to contributions from equity participants.

Expenses: These are decreases in economic benefits during the accounting period in the form of outflows and depletions of assets or the incurrence of liabilities that result in a decrease in equity other than those relating to distributions to equity participants.

Furthermore, a financial statement contains certain components that make up the entire report. These include:

Statement of Financial Position

Income Statement

Cash Flow Statement

Statement of Changes in Equity

Explanatory notes to the accounts

Directors’ report

Auditor’s Report

Chairman’s Statement

Value Added Statement.

Typical users of a financial statement include:

Management

Employees

Existing shareholders

Potential shareholders

Government agencies (NDIC, CBN, CAC, etc.)

Tax authorities (FIRS)

Public (CSR)

Competitors

Suppliers of Goods and Services

Providers of long-term sources of finance/funds, for example, debenture holders (lenders of money to companies or providers of loan capitals)

Financial institutions

Beyond knowing the basic concepts of what a financial statement entails, Corporate Financial Accounting goes a step further, guiding participants on how to prepare such statements. Personally, accounting comes with a scare, but as they say, what doesn’t kill you makes you stronger, and I am determined to see this through and become an accounting guru.

#MMBA5