financial accounting department of accounting - peder fredslund møller ”agenda”...
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Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
”Agenda”
• Presentation/repetition of the exam.• Presentation of the course, syllabus, books, and home
page.• Overview of the Danish accounting structure.• Understanding of financial accounts, who are the users?,
and what are accounts used for?• Understanding of financial accounting concepts• General understanding of company activities• Understanding of Danish requirements to annual accounts• Tutorials
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The exam:
• 2-hour written exam in May/June (No supplementary aids!)• Co-weighted 50-50 with grade from Management
Accounting exam
• Possible re-exam in August if:• you have taken the ordinary exam in Management
Accounting and Financial Accounting, respectively• and• the co-weighted grade is < 6• or if you have the grade 00 in one of the exams (obligated
to take the exam again)
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
30 lectures during the course
• 11 chapters of Stickney & Weil
• The compendium on consolidated accounts
• Notes etc.
Please note: We start out fairly slowly, BUTthe pace will pick up
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
14 tutorials during the course
• The first exercises will be from the text book.
• The exercises concerning group accounts, equity-accounts and flow accounts are big (they are not representatives of current exams as they were made during another exam system of longer exams (3-hour or 6-hour exams). In other words other types of assignments will be used in exams, like for instance ”explain....” questions.
• The assignments are dealt with by the tutors.
• The assignments make up a significant part of the combined course package – and they are relevant for the exam.
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
Central issues of the course:
• Problems concerning calculation of income and size and periodical adjustment of Expenses.
• Valuation of inventory and liabilities.
• Other essential items in an informative income and balance sheet statements.
including: revenue recognition criteria, conventions, depreciation, leasing, debt, taxes, cash flow accounts, and group accounts.
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
Possible exam issues:• Cash flow statements• Group accounts• Equity method for subsidiaries• Deferred taxes• Treatment of construction contracts• Inventories• Leasing• Warranty costs• Loss on debtors• + Questions of understanding• Multiple choice has been used earlier, but will not be used in
future
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
Purpose of the lectures:
• The purpose of the lectures is twofold: 1. To enable the students to understand and apply fundamental
accounting concepts, accounting methods, and accounting conventions.
• I.e. focus is on methods for recognising and measuring accounting items in the balance sheet and income statement
2. To enable the students to understand the required ways of recognising and measuring items in the balance sheet and income statement according to the Danish Company Accounts Act and the Danish Financial Accounting Standards.
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
SOURCES to determine how to deal with items
ADDITIONAL LITERATUREADDITIONAL LITERATURE
ADDITIONAL LITERATUREADDITIONAL LITERATURE
ADDITIONAL LITERATUREADDITIONAL LITERATURE
IASIAS
DANISH ACC. STANDARDSDANISH ACC. STANDARDS
DCAA DCAA
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
Annual Accounts:= Published information from the company to
external users
which contain input relevant for decision-making
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
• the company is an entity, i.e. its financial activities are separate from other entities and its owners.
• In this course we deal with companies that are subject to the Danish Company Accounts Act.
The company
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The companyWhere does the Danish Company Accounts Act
apply?
• In general to all companies, cf. DCAA §1• In reality to all companies with limited
responsibility (public companies, private companies, corporate funds, limited liability cooperatives etc.) - especially to those that are not quite small companies (exceed 2 of 3 criteria: balance sum > 4 millions, net turnover> 10 millions, full time employees > 10)
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
External users = persons/institutions• typically without internal knowledge of the
company and • generally without lack of authority to demand
special information from the company and• that will have to use published accounts to acquire
financial information about the company to make decisions about their relation to the company.
External users
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
External users
• Examples of external users?
• Whose information needs are most comprehensive?
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
WARNING!!!!!REMEMBER THAT ANNUAL ACCOUNTS ARE
NOT TAX ACCOUNTS.• TAXES ARE DETERMINED BY THE TAX
ACCOUNTS, AND THE ANNUAL ACCOUNTS ONLY REFLECT THE CONSEQUENSES OF TAXATION - THE ANNUAL ACCOUNTS DO NOT AFFECT TAXATION
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The purpose of accountsTo give
• a true and fair view of performed financial activities of a company to the external users =>
• relevant information to the financial decisions of the users.
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The basic idea behind accountsTo comprise consequences of all earlier transactions of a company with the outside world and production actions etc. with regard to 1) The value of company resources and commitments at the end of the reporting year – in the BALANCE SHEET2) The company net resources created/lost during the reporting year – in the INCOME STATEMENT( 3) Company payments made/received during the reporting year – in the CASH FLOW STATEMENT)
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The basic idea behind accountsValue recognition involves assessment = subjective estimates
• But estimates are based on objective relations - the individual transactions/production actions• The over-all assessment becomes a bottom-up assessment• The assessment must be accepted by an independent auditor, who declare that the accounts are legal and give a true and fair view.
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
Goals and
Strategies
Goals and
Strategies
Investing Financing
Operating
Current
Cash
Accounts Receivable
Inventories
Marketable Securities
Noncurrent
Land, Buildings, and Equipment
Patents
Investments in Securities
Noncurrent
Bonds Payable
Common Stock
Retained Earnings
Current
Notes Payable
Accounts Payable
Salaries Payable
Income Taxes Payable
Sales Revenue
Cost of Goods Sold
Selling Expense
Administrative Expense
Interest Expense
Income Tax ExpenseAssets
(Balance Sheet)
Net Income (Income Statement)
Liabilities and Shareholders’
Equity(Balance Sheet)
Copyright 2000 by Harcourt, Inc. All rights reserved.
Fig 1.2 -- Relationship between Business Activities and Balance Sheet and Income Statement
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
What are the elements of annual accounts?
The Danish Company Accounts Act § 2:
• The income statement• The balance sheet• Notes - including information about applied accounting policies• Annual report• Cash flow statement? : Answer: Yes, for medium-seized and large companies•Auditors’ report
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The Balance sheet• A “snapshot” of investing and financing activities
• Balance sheet equation:
Assets = Liabilities + Shareholders’ equity
which corresponds to Investing = Financing Resources = Sources of resources Resources = Claims of resources
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The income statement • The result of a company’s operating activities for a specific period of time
• Net income = Revenue - Expenses
• Shareholders’ equity is increased/reduced by the net income minus dividend (cf. the balance sheet)
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
The cash flow statement•Reports the company’s net cash flows and their sources
• Cash flows are divided into three ”categories of sources":* Operating activities,* Investing activities and* Financing activities
Financial AccountingFinancial Accounting
Department of Accounting - Peder Fredslund Møller
recommended assignments:
1.14a for years 8 and 11
1.19a for year 6
1.16a for year 9 (it it necessary to calculate transferred profitin year 8 too)