Accounting Course Overview

Introduction

• Instructor: Ned, a financial analyst with Big Four experience.
• Focus: Bookkeeping, credits and debits, income statements, balance sheets, and cash flows.
• Objective: Understand financial transactions, build financial statements, and analyze financials like P&G.

Lesson 1: Introduction to Accounting

Key Questions

1. What is accounting?
2. Why do we need it?
3. What types of accounting are there?

Definition of Accounting

• Accounting: An information science for organizing financial data.
• Concerned with quantitative, monetary information.
• Practical, not abstract, skill best learned by doing.
• Essential for both organizations and individuals to manage finances.

Importance of Accounting

• Helps in organizing financial information for decision making.
• Utilizes past data to influence present actions and future changes.

Types of Accounting

1. Bookkeeping: Systematic collection of financial information.
2. Financial Accounting: Creation of income statement, balance sheet, and cash flow for external stakeholders.
3. Managerial Accounting: Internal, detailed financial information for strategic decisions.
4. Tax Accounting: Focus on tax obligations (not covered in this course).

Bookkeeping

Importance

• Fundamental to maintaining financial records.
• Crucial for organizations, banks, and individuals to function.
• Example: General Electric's complex operations require precise bookkeeping.

Financial Accounting

Purpose

• Produces reports for outsiders to assess a company’s performance.
• Enables banks and investors to make informed decisions.

Key Statements

1. Income Statement (P&L): Analyzes company profitability.
2. Balance Sheet: Shows what a company owns and owes.
3. Cash Flow Statement: Details cash inflow and outflow.

Income Statement Items

Revenue

• Net Sales: Core business operations.
• Other Revenue: Non-core activities (e.g., rental income).

Expenses

• Cost of Goods Sold: Direct production costs.
• SG&A: Selling, general, and administrative expenses.
• Depreciation & Amortization: Asset value reduction.
• Interest Expenses: Costs of borrowed funds.

Profit

• Gross Profit: Total revenue minus cost of goods sold.
• Net Income: Profit after all expenses.

Balance Sheet

Components

• Assets: Cash, accounts receivable, inventory, property, plant, and equipment.
• Liabilities: Accounts payable, financial liabilities.
• Equity: Paid-in capital.

The Accounting Equation

• Equation: Assets = Liabilities + Equity.
• Ensures balance in financial statements.

Conclusion

• Understanding of financial statements and their components is crucial.
• Importance of the accounting equation in financial reporting.