Financial Accounting
Introduction:
Definition: Accounting is the process of identifying, measuring and communicating financial information to help people make economic decisions.
Accounting: Financial and Managerial Accounting

Users of Financial Accounting:
Shareholders to invest in the company,
Creditors and Suppliers to determine loan terms and supply-chain relationships,
Managers and Directors for incentive compensation,
Financial Analysts (Credit Rating Agencies, Portfolio managers) to identify risks and forecast performance and buy or sell recommendations and
Others such as Labor unions to negotiate labor contracts, Tax agencies to determine tax policies, Government agencies to enforce regulation, customers, employees etc.

The act of providing financial information to external users is called disclosure.
Disclosure allows to study financial statements of competitors to learn about successful products, new strategies, innovative technologies and changing market conditions – Competitive disadvantage.

There are always competitive costs and political costs attached to disclosure of financial statements.

For Planning Business Activities: Investing activities, Strategic activities, operating activities and financing activities etc. confronting external forces: competition, customer preferences, regulation and economic conditions.

Accounting Equations:
Assets = Liabilities + Equity (Used for Balance Sheet)
Operating Income/Profit/earnings/loss = Operating Revenue – Operating Expenses (used for Income statement)

Four Financial Statements:
1. Balance Sheet (Investments and sources of financing)
2. Income Statement (results of operations)
3. Statement of Stockholders’ equity (changes in owner financing)
4. Statement of Cash Flow (sources and uses of cash)

Statement of Cash flow captures: Operating, financing and investing cash flows.
Balance sheet reports on a company’s position at a point in time.
Other three statements report on performance over a period of time

Accounting year = Fiscal year
Amounts listed in the balance sheet will be carried forward for the next year but not those listed in the income statement. All the income statements are closed at the end of the accounting year.
Gross Profit/margin = Sales – COGS
Dividends are reported in the statement of equity and not in the income statement
Operating cash flow and net income need not always be same.
Linkages among the four primary financial statements is termed as Articulation.

Other Financial statements are:
Management Discussion and