Study Notes on Introduction to Financial Accounting

University:
California State University, Northridge
Course:
ACCT 220 | Introduction to Financial Accounting
Academic year:

2020
Views:

473

Pages:

2
Author:

Samya L.

Study Notes on Introduction to Financial Accounting 1. Introduction to Financial Accounting Financial accounting is the branch of accounting that deals with the recording, synthesis, analysis and communication of a company's financial transactions. It provides a snapshot of the financial performance and position of the business through financial reports. 2. Fundamental Principles of Accounting Accounting is guided by a set of fundamental principles including the accrual method of accounting, the going concern principle, the prudence principle, and the principle of independence of periods. These principles ensure that financial accounting is carried out in a consistent and fair manner. 3. The Balance Sheet The balance sheet is a snapshot of a business's financial position at a given point in time. It's divided into assets (what the business owns), liabilities (what it owes), and equity (the difference between assets and liabilities, representing the net worth of the business). 4. The Income Statement The income statement is a report that shows a business's profit or loss over a given period. It includes revenues, cost of goods sold, operating expenses, and other income and expense items. 5. The Statement of Cash Flows The statement of cash flows provides information about a business's cash inflows and outflows over a period. It's divided into three activities: operating, investing, and financing. 6. Financial Statement Analysis Financial statement analysis involves examining and interpreting the information contained in financial statements to make informed decisions. Financial ratios, such as liquidity ratio, solvency ratio, and profitability ratio, are often used in this analysis. 7. Management Accounting vs Financial Accounting While financial accounting is mainly used to inform external parties to the business (like investors, creditors, etc.), management accounting is used to provide information useful for internal decisionmaking. 8. Conclusion Understanding financial accounting is crucial for anyone involved in managing a business. It provides the necessary tools to understand the financial health of a business and to make informed decisions.