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.

accounting fundamentals such as how to read financial statements and a balance sheet

‘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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