4. 4
At the completion of this section, participants will be able to:
• Identify the major categories of ratios that can be used for analyzing
financial statements.
• Calculate key ratios for assessing the financial performance and
position of a business and explain their significance.
• Discuss the use of ratios in helping to predict financial failure.
• Discuss the limitations of ratios as a tool of financial analysis
Objectives
5. 5
• Scarcity refers to the basic economic
problem, the gap between limited –
that is, scarce – resources and
theoretically limitless wants.
• This situation requires people to make
decisions about how to allocate
resources efficiently, in order to satisfy
basic needs and as many additional
wants as possible.
Scarcity of Resources
7. 7
finance is a broader term
for the management of
assets and liabilities and
the planning of future
growth
Finance Accounting
accounting focuses on the
day-to-day flow of money
in and out of a company
10. 10
Accounts
Any organized format used by
companies to accumulate the
dollar effects of transactions
Cash
inventory
Equipment
Notes Payable
11. 11
Chart of Accounts
Assets Liabilities Owners Equity Expenses Revenue
A chart of accounts lists all
account titles and their unique
numbers
12. 12
Chart of Accounts
Assets
Liabilities Owners Equity
Expenses Revenue
Anything that
has the ability to
provide services
and benefits to
the enterprise in
the future
Obligations
owned by the
enterprise to
outside parties
Obligations
owned by the
enterprise to its
owners or
owners
Cost of goods
and services
used in carrying
out the activities
carried out
obtain revenues
Achievements
from the sale of
its goods or
services whether
paid or not
Debit Credit Credit Debit Credit
Source of Money
16. 16
Accounting System: Flow of Information
1- Journal entries and adjusting entries
2- General ledger
3- Initial trial balance
4- Adjusting entries
5- Account balances from the adjusted trial balance
17. 17
Accounting System: Flow of Information
1- Journal entries and adjusting entries
• Preparation of journal entries is the starting
point in the flow of information
• used for recording business transactions
sorted by date and time
• Adjusting journal entries are typically made
at the end of an accounting period to
record items such as accruals.
18. 18
Accounting System: Flow of Information
2- General ledger
• A ledger shows all business
transactions by account (useful
for reviewing all of the activities
that are related to a single
account)
• General journal by account
19. 19
Accounting System: Flow of Information
3- Initial trial balance
• A trial balance lists all the account
balances at a specific point in
time
• It is usually prepared at the end of
an accounting period as a first step
in producing the financial
statements
20. 20
Accounting System: Flow of Information
4- Adjusting entries
• If any adjusting entries are
needed, they will be recorded
and reflected in adjusted trial
balance
21. 21
Accounting System: Flow of Information
5- Account balances from the adjusted trial balance
• It is usually prepared at the end of
an accounting period as a first step
in producing the financial
statements .
• If adjusting entries are made, an
adjusted trial balance is then
prepared.