Riassunto International Accounting prof. Trucco

THE BALANCE SHEET

STATEMENT

INCOME

PROFIT

Revenues

Current expenses

LOSS

Financial Accounting 8

THE BALANCE SHEET

THE BALANCE SHEET TYPICAL

ASSETS

LIABILITIES

SHAREHOLDERS' EQUITY

Cash

Trade receivables

Financial debts

Fixed assets

Trading debts

Unearned revenues

Pre-paid expenses

THE BALANCE SHEET

THE BALANCE SHEET

BALANCE SHEET

Financial Accounting 9

Financial position of an entity at a specific moment

Assets

Liabilities

Owners Equity

Economic resources

Obligations to outside parties

Amount provided by equity investors

Residual claim: only after all the other have received money the creditors have a claim.

Financial Accounting 10 91

The Balance Sheet

Are economic resources that are owned by a business and are expected to benefit future operations

Represents the owners' claims on the assets of the business. Owners are entitled to assets that are left

After the claims of creditors have been satisfied in full (because creditors' claims have legal priority over assets). Are financial obligations or debts. They LIABILITIES represent future cash out of money for the company. The person or entity to whom the debt is owned is called "creditor".

Financial Accounting 11

BS represented as assets equal to liabilities plus equity. BS necessary to be balanced. Total asset and total liabilities are the same number. The Balance Sheet BALANCE SHEET Assets remaining after the liabilities will be claimed by equity investors:

1. Any assets not claimed by creditors will be claimed by equity investors
2. Total of amounts of claims cannot exceed what there is to be claimed

Assets Liabilities Owners Equity

Dual aspect concept

Financial Accounting 12 92

The Income Statement

THE INCOME STATEMENT

COSTS REVENUE

Revenues

Current expenses

It shows, for a particular period, the OUTPUT of the company and the inputs used to achieve that output

HOW DO WE MEASURE vOUTPUT =

SALESOUTPUT?Financial Accounting 13BS photograph at the reporting date related to assets, liabilities and equity.

It is necessary that we have the direct correspondence between current expenses and revenues.

Current correspondance: we spend money related to the current expense to achieve revenues with the sales.

The period where we earn the expenses is the same where we earn the revenues.

This means it is necessary we consider the competences of the expense and of the revenues and to extract from the IS all the expenses not related to the period and as well the revenues not related to the period represented. Otherwise we make a mix between the photograph related to that period and what happened in the company.

Prepaid expenses and unearned revenues means they are not included in the IS of the period because it is not a cost included in the period that IS represents. For example IS starting from the 1 of January till the 31 of December. If I have paid in advance something to my 1st supplier, we

Non ho bisogno di trovare spese anticipate tra i ricavi non guadagnati nel conto economico: devo trovare solo i costi/spese e i ricavi e i guadagni relativi al periodo che il conto economico rappresenta. Sai, devo pagare i salari e pago 14 mensilità al personale e la 14esima viene pagata a giugno. Ma è relativa all'intero periodo giugno-maggio dell'anno successivo. Quindi, quale periodo devo rappresentare nel conto economico? 6 mesi, perché il periodo concluso è relativo a 2 mesi che vanno da gennaio a dicembre. Nel caso della Quattordicesima, quindi, pago il personale per 14 mesi, se la 14esima in Italia viene pagata a giugno, qual è il periodo di competenza relativo al mio conto economico che va dal 1/01 al 31/12? La seconda parte dell'anno. Quindi avrò un costo di competenza che va da gennaio a giugno. Il costo relativo al periodo dell'anno precedente, luglio-dicembre, è nell'esercizio precedente perché il costo è riferito ai 6 mesi.

Dell'esercizio precedente, ossia da Dicembre a Luglio. Consequently in this current period I will find in current expenses a salary for 50 euros and not for 10 euros. When I pay a salary, I use money so I have a reduction in cash but also a reduction in the profit and loss in the year before. When I accounted for current expenses in the year before for 50, the counterpart in terms of BS probably is not cash because I haven't paid nothing, then probably I have a debt against the personnel. When I open the balance at the beginning of 2002 I find a debt to the personnel. 20 euro in current expenses, 10 euro reducing cash and 50 euros coming from the preceeding year in personnel debt. Reducing the personnel debt in counterpart of cash.

The Income Statement

THE INCOME STATEMENT

Revenues Expenses

Creation (inflow) of Consumption (outflow) of assets from the sale of resources required in order to generate these revenues

When total revenues exceed total

expenses = net profit When total expenses exceed total revenues = net loss Financial Accounting 14 REVENUES Are increase in the company's assets from its profit-directed activities and they generate cash in of money to the firm. EXPENSES Are decreases in the company's assets from its profit-directed activities and they generate cash out of money. NET INCOME Is given by the difference between Revenues and Expenses for a specific period of time. If the difference is negative is called "Loss". 94 EXERCISE 1- Decrease of 300 in cash and 300 in increasing debt. If I receive a raw material, consequently I have to recognize its increase in my inventories, to balance such increase I have a decrease in cash and increase in liabilities. When I will pay also the other part, I will have a reduced in debt in trade payable and reduce in cash (300, residual part). 2- Cash inflow, so increase of bank account of 700 and also increase in bank loan of 700. 3- You receive 200 of cash, so +200 in

bank account, but this cash is represented by an increase in advances from customers which is a sort of debit, so +200 in advancing from customers (liabilities).

If I receive money from my client as a cash advance and I didn’t sell anything (cash advance: I received cash and I sold anything). The client finance me and give. Me some money in advance. Increase in bank account.

If I receive cash and I don’t give nothing to my client, is like a loan. I receive cash and then I have to repay with goods, services, money such cash advance. 200 increase cash in the asset (account receivable), and in the liabilities 200 debit to customers.

As regards the value of sales of 500, at the moment we receive cash account I didn’t recorder anything, when I am ready to sell the goods to the same client that give me money in advance, I will recorder the sales of 500. On the other side I can write which type of credit to the customer of 500. Then I will balance: increase in revenues and increase in assets.

954- Nothing. Aumento castelletto bancario. So che ho l'autorizzazione ad aumentare il debito dalla banca, ma per il momento non faccio nulla. Authorization to go on overdraw. It ill not recognize anything.

5- Raw material. Shares in a subsidiaries is like a raw materials in terms of assets. Shares to make sinergies with other companies. Increase in asset and reduction of liquidity in the bank account (outflow). So both in asset, decrease 200 in bank account and increase 200 in investing subsidiaries.

6- Instalments to the bank of 110: decrease in bank account of 110 (cause we pay money) and then decrease of bank loans of 100. Interest as a reduction of equity of 10. Decrease interest expenses, finance expenses. -110 in banca, ma 100 mi riducono il bank loan, 10 vanno al conto economico come interessi, quindi meno equity e più costo.

7- Decrease of 20 in raw materials (inventories) because you are giving back so you have a reduction and also reduction in trade payables of 20

(perché primo step: ho comprato raw materials for 300by paying cash and 300 by debit so I still have to pay t my supplier it. If I give back to him thesematerial, I am not going to give him 300 anymore but 380 because I am giving back raw materialof bad quality. So less raw material and reduction in trade payables). Quando vendo I raw materialpoi vanno inseriti nell'income statement. Se non c'è la vendita no.8- No records. It is a further enhancement of the overdraft.9- 1400 increase in bank account (you have a cash in)(100 è un costo per me) and increase inliabilities, so in bond loans, for the face value of the bonds, 1500 and increase in interest cost (sodecrease of equity) for 1000.1500 liabilities, 1400 cash in e 100 è il costo, da registrare sia nel conto economico, income charges,sia nell'equity.10- Increase in bank account for 600 (cash), advances for customers for 200 (diminuizione deldebito, quindi +200) and increase in revenues

equity for 800. operation linked to operation n.2. The client that originally gave you 200 of advances now is completing the transaction.

Revenues for 800, cash in for 600 and lens in advances for customers for 200.

11- Debit: new plant for 1200 and derecognize (eliminare dallo stato patrimoniale, poiche comproNuovo impianto per 1200 dando in permuta il Vecchio per 400) the old plant for 400 and reductionbank account for 800.

12- When I have an invoice and I know my customer will pay an invoice in 3 months but I need tohave cash now, I go to a factory company, usually a bank, and give them this in voce. They willfinally receive cash from my customer for this invoice and I suddenly receive the amount of cashI need. 96Increase in cash for 850, decrease in trade receivable for 100 and the difference between my cash inand the trade receivable I’ve sold is the financial charge of this transaction. I have to recognize 15 inthe financial charge and minus equity.

13- Manutenzione ordinaria

va a conto economico, quella straordinaria di genera aumenta il valore di un impianto quindi va capitalizzata. 14- Con il "with recourse" if the customer will not pay at the end of the day, b I will be liable so in this case you have to recognize not a reduction in trade payables but an increase in bank loans. Before we recognize and increase in trade receivables, now we have that increase I bank account from 150, but also an increase in bank loan for 150 because we cannot recognize trade receivables because the factory is an operation with the formula with recourse. With recourse: se il mio cliente non paga io sono responsabile e dovrò restituire i soldi alla banca. Decrease in bank account