Accounting Fundamentals – how to construct an income statement, balance sheet and cash flow and read financial statements
Accounting Fundamentals – how to construct an income statement, balance sheet and cash flow and read financial statements
In this two-part module of this first part of the course we will be dealing with accounting fundamentals such as how to read financial statements and a balance sheet and where you will be expertly guided through the accounting process.
‘Get the balance right ’
Course description part 1 – Accounting fundamentals – How to construct an income statement, balance sheet and cash flow
The key ingredients of accounting fundamentals
From the layout of the balance sheet, income statement and cash flow statement through to the preparation of financial statements, you will learn the fundamentals from the very basics through to more sophisticated functions which are key ingredients in financial analysis and financial modelling.
This module includes a variety of applied exercises and case studies while sophisticated navigation and search tools enable you to learn at your own pace. Pop quizzes also test you on what you have learnt and two PDF reference guides: an accounting fact sheet and a financial statements glossary are also included, which can be used during the course and downloaded for future reference.
Section 1 – How to construct an income statement and balance sheet
In this section we examine the layout of the balance sheet and income statement and analyse the recording of transactions and prepare a basic balance sheet and income statement. Upon completion of this section you will have grasped the techniques in constructing a balance sheet and income statement.
You will learn how to:
- Describe the structure of the income statement and balance sheet.
- Explain and provide a definition of the various financial terms, for example prepayments, accounts receivable etc.
- Record transactions in financial statements, for example raising equity, buying inventory, invoicing etc.
- Develop a basic income statement and balance sheet.
Section 2 – How to construct a cash flow statement
In this section we examine the layout of the cash flow statement, define the differences between the cash flow statement and income statement and develop a cash flow statement. Upon completion of this section you will have obtained a good grasp of how to construct a cash flow statement.
You will also learn how to:
- Summarise the format of a cash flow statement.
- Define the difference between profit and cash.
- Develop a basic cash flow statement using the income statement and balance sheet.
Module curriculum
- How to construct a balance sheet and income statement
Downloadable Files
Section objectives
The three key financial statements
The balance sheet: assets
The balance sheet: liabilities
The balance sheet: equity
Balancing the balance sheet
Recording transactions
Issuing shares for 100 in cash
Taking out a four year bank loan
Buying a property for 80
Buying inventory for 60
Selling all inventory for 90
Paying salaries of 20
Paying interest of 3
Current assets quiz
Defining accounts receivable and payable
Buying and selling on credit
Valdero Inc.: exercise
Balance sheet quiz
The role of the income statement
The income statement: gross profit
The income statement: operating income
The income statement: net income
Creating a full income statement
Recording income and expenses
Depreciation
Prepayments
Another example
Accrued expenses
Finance term quiz
Luton Inc. exercise
The impact of depreciation
Jenga Inc.: exercise
Conclusion
Module 1 – Quiz
CFI Survey
- How to construct a cash flow statement
Downloadable files
Section objectives
Three key financial statements
The role of the cash flow statement
The cash flow statement: operating cash flows
The cash flow statement: cash before financing
The cash flow statement: net cash movement
Recording income and expenses
The idea of matching over time
Matching over time solution
PP&E and depreciation recap
Depreciation and the three financial statements
Calculating operating cash flows – direct method
The indirect method
Operating cash flows – indirect method
Operating cash flows example period 1
Period 1 solution
Operating cash flows example period 2
Period 2 solution
Operating cash flows example period 3
Period 3 solution
Operating cash flows quiz
Johannes operating cash flow exercise
Deriving the complete cash flow statement
Stage one – compare the balance sheets
Comparing assets and liabilities
Stage two – classifying the cash flows
Classifying working capital cash flows
Dealing with property, plant and equipment
Calculating net capex
Calculating net capital expenditure
Dealing with retained earnings
Net capital expenditure quiz
Preparing a cash flow statement exercise
Conclusion
Course Evaluation
Section 2 – Quiz
Course description part 2 – How to read a balance sheet
Financial muscle
In this two-part module you will learn how to read financial statements. Using a public company’s financial statements and annual report to provide a working example, we will enable you to gain an understanding of the company’s financial muscle in order to make informed decisions.
This interactive module includes a variety of applied exercises and case studies while sophisticated navigation and search tools enable you to learn at your own pace. Pop quizzes also test you on what you have learnt and two PDF reference guides: an accounting fact sheet and a financial statements glossary are also included, which can be used during the course and downloaded for future reference.
Section 1 – How to interpret the balance sheet
In this section you will learn how to read the balance sheet and related notes to the financial statements of Microsoft 2010 to gain an understanding of the financial muscle of this company in order to make informed decisions. Upon completion of this section you will have gained an in-depth understanding of the specific accounts of a typical balance sheet and related notes to the financial statements.
You will also learn how to:
- Successfully navigate through the notes to the financial statements
- Read an interpret the various items in a published balance sheet
- Grasp complex balance sheet concepts such as investments, deferred taxes, goodwill etc.
Section 2 – How to interpret the income statement and cash flow
In this section we will continue the analysis of Microsoft 2010 financial statements through to the income statement and statement of cash flows and end with the key contents of an annual report. By the end of this section you will have gained a thorough understanding of a typical income statement, statement of cash flows and annual report.
You will also learn how to:
- Present an income statement and cash flow in various different ways.
- Read and understand the various items in a published income statement.
- Pinpoint a company’s operating, financing and investing activities.
- Determine the contents of an annual report.
Module curriculum
- How to interpret the balance sheet
Downloadable Files
Section objectives
Three key financial statements
Balance sheet
Income statement
Statement of cash flows
Simplified balance sheet
Current vs non-current
Balance sheet quiz
Microsoft balance sheet demonstration
Investments
Deferred income taxes
Goodwill
Intangible assets
Unearned revenue
Commitments
Contingencies
Common vs preferred shares
Authorized vs outstanding share capital
Contributed surplus
Other comprehensive income
Balance sheet component matching exercise
Statement of shareholders’ equity
The full disclosure principle
Three key financial statement notes
Significant accounting policies
Direct information
Indirect information
Noteworthy exercise
Conclusion
Section 1 – Quiz
- How to interpret the income statement and cash flow
Downloadable Files
Session objectives
The three key financial statements
The income statement
Single step vs multi-step income statement
Cost of sales
Selling, general and administration
Gains and losses
Microsoft income statement exercise
The cash flow statement
The cash flow activities
Operating activities
Investing activities
Financing activities
Direct method vs indirect method
Direct method
Indirect method
Key elements in a cash flow statement
Microsoft cash flow statement exercise
The benefits of an annual report
Contents of an annual report
Management discussion and analysis
Microsoft reporting challenge exercise
Conclusion
Section 2 – Quiz
Course Evaluation
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