Financial Accounting Essentials You Always Wanted to Know

A Simple Guide to Financial Statements, Accounting Systems, Balance Sheets, and Income Statements

Kalpesh Ashar, Vibrant Publishers

• Publisher: Vibrant Publishers
• Year: 2022
• Edition: 5
• eBook ISBN:
  9781636510989
• Topic: Business
• Subtopic: Accounting
• Index: Business

A Simple Guide to Financial Statements, Accounting Systems, Balance Sheets, and Income Statements. A simple guide to understanding complex financial statements.

Are you a new manager looking to understand the foundations of financial accounting?

Are you a finance professional who wants to know how to document finances for shareholders?

Are you an aspiring finance student who wants a quick guide to all the concepts of financial accounting?

Financial Accounting Essentials You Always Wanted to Know is back with a new and updated 5th edition! This edition includes two new chapters on the Accounting Cycle. It is a starter pack for new managers and leaders who require a foundational understanding of financial accounting terms and who need to understand why preparing a financial statement is so necessary. After reading this book, managers will be equipped with the critical tools to document finances for shareholders and prepare financial statements for their organization

This book will help one to:

• Understand why financial accounting systems are necessary
• Learn financial accounting systems and terms
• Explore the importance of a Financial Statement
• Learn about the concept of Balance Sheet
• Understand what is an Income Statement
• Learn how to create a Statement of Cash Flows

This 5th Edition contains two new chapters on:

• Accounting Cycle
• End of Accounting Cycle

Each chapter provides clear

Chapter 1

Accounting Systems

In this chapter, we shall look at the fundamentals of financial accounting. These form the pillars for our understanding of the later chapters.

The key learning objectives of this chapter are:

• Understand the different types of accounting systems
• Get introduced to financial statements

An accounting system helps capture and organize information related to business transactions. Depending upon the focus it can be divided into two types:

a) Financial Accounting and

b) Managerial Accounting.

A Financial Accounting system contains financial statements and disclosures meant for decision makers external to the company. A Managerial Accounting system contains detailed plans and performance reports meant for decision makers within the company.

1.1 Financial Accounting Systems

A financial accounting system is a system that serves the dual purpose of keeping track of transaction information and helping organize and evaluate this information primarily meant for external decision makers. The part related to keeping track of information is termed as “Bookkeeping”, which is related to recording an activity, like taking a loan, paying a supplier, or receiving a payment. The other part related to organizing information for evaluation is termed as “Financial Statement”, which consists of summarised information on the business activities that help in evaluating the health of a business. Bookkeeping is done first and then the captured data is organized and evaluated as part of the Analysis stage.

1.2 Need for Financial Accounting Systems

Consider the following example. A company buys equipment from another company and pays for it after 10 days. It also produces certain goods and sells 100 units to its customers and receives payment after 30 days. Assume that it also had to raise capital through a bank loan to buy the equipment and produce the goods. If none of these transactions were recorded, it would be impossible to know the amount the company currently owes or needs to receive and therefore, the health status of the company. Hence, bookkeeping (or recording of these transactions) is required by all companies.

Now assume that all transactions are recorded through a bookkeeping system...

Table of contents

• Accounting Systems
• The Accounting Cycle
• End of Period Accounting Cycle
• Overview of Financial Statements
• The Balance Sheet
• The Income Statement
• The Statement of Cash Flows