4 FM101D lecture

Course Information

• Course: Financial Management I (FM101B)

• Institution: IMM Graduate School, Parktown

• Location: KZN, PTA, CT

Attendance

• Date of Attendance: March 08, 2025

• Locations: Parktown (PW 2b), KZN, PTA, CT (PW 2c)

Accounting Branches

Difference Between Management Accounting and Financial Accounting

• Understanding the distinction between management accounting and financial accounting is pivotal for effective financial analysis and reporting.

Financial Accounting

• Purpose: Focuses on preparing reports that demonstrate the financial performance and position of a company to external parties like investors, creditors, and regulators.

• Key Features:

  • Preparation of financial statements including the Income Statement, Balance Sheet, and Cash Flow Statement.

  • Adherence to standardized rules and regulations such as IFRS or GAAP.

  • Reports are past performance oriented, targeting external users.

  • Example: A company publishes its annual financial report, detailing profit or loss for shareholder evaluation.

Management Accounting

• Purpose: Utilized by internal management for informed business decision-making and operational improvement.

• Key Features:

  • Focuses on planning for future operations and decision-making processes.

  • Custom reports designed for internal use, without strict regulatory formats.

  • Targets internal users like managers and executives for enhanced decision-making.

  • Example: A manager develops a budget report that outlines expected marketing expenses for the forthcoming year.

Key Differences Summarized

• Analogy: Financial Accounting is akin to a report card for outsiders, while Management Accounting serves as a GPS for internal managers seeking to navigate future decisions.

• User Groups:

  • Financial Accounting: External (Investors, Regulators)

  • Management Accounting: Internal (Managers, Executives)

• Focus:

  • Financial Accounting: Reporting past performance

  • Management Accounting: Planning and decision-making for the future

• Rules & Standards:

  • Financial Accounting: Adheres to IFRS/GAAP

  • Management Accounting: Flexible, utilizing internal standards

• Reporting Formats:

  • Financial Accounting: Income Statement, Balance Sheet, Cash Flow Statement

  • Management Accounting: Budgets, Cost Analyses, Forecasts

Study Unit 2: Basic Accounting Entries, Adjustments, and Financial Statements

Overview

• This unit emphasizes basic accounting principles and practices crucial for financial reporting.

• Key Concepts to Cover:

  • Double-entry accounting

  • General journal entries including depreciation, interest expense, and bad debts

  • Understanding the accrual concept and its effects on financial statements

  • Year-end adjustments (accrued/prepaid expenses and income)

  • Preparation of the Income Statement and Statement of Financial Position

Independent and Group Work

• Students are expected to self-manage their independent study, constituting 70% of their work in the module, while lectures and tutorials account for the remaining 30%.

Resources for Additional Understanding

• YouTube Channels:

  • Accounting Stuff: Accounting Stuff Channel

  • Key videos to aid in understanding financial statements:

    • "The KEY to Understanding Financial Statements": Watch here

    • "FINANCIAL STATEMENTS: all the basics in 8 MINS!": Watch here

Statement of Financial Position (Balance Sheet)

• Definition: The Statement of Financial Position illustrates an entity’s financial condition at a specific point in time, invoking the basic accounting equation.

• Components:

  • Lists all assets, liabilities, and equity of the organization.

  • Understanding current assets and current liabilities is critical as these concepts foundationally underlie the disclosures made in this statement.

• Significance: Assessing elements such as net asset value, liquidity, gearing, solvency, and asset utilization using figures from this statement permits informed decision-making by users.

Activity Preparation

In-Class Activity: Preparing a Simplified Statement of Financial Position

• Objective: Engage students in applying knowledge about the Statement of Financial Position by organizing financial data effectively.

• Instructions:

  • Form small groups and give each set financial data from a proposed business.

  • Classify data under Assets, Liabilities, and Equity, then construct a Statement of Financial Position with the proper format.

  • Collaboratively discuss as a class to compare findings.

Financial Information Case Study for XYZ Traders

• Information (As of Dec 31, 2025):

  • Cash in Bank: R50,000

  • Accounts Receivable: R30,000

  • Inventory: R40,000

  • Equipment: R100,000

  • Land: R200,000

  • Accounts Payable: R20,000

  • Loan from Bank: R80,000

  • Owner’s Capital: R50,000

  • Retained Earnings: R70,000

Journal Entry Exercises

Journal Entries for Various Transactions

• Q1: The fundamental principle of the double-entry system states that every transaction affects two or more accounts (B).

• Q2: Correct journal entry for depreciation is: Dr. Depreciation Expense | Cr. Accumulated Depreciation (B).

• Q3: Interest expense recorded as: Dr. Interest Expense | Cr. Interest Payable (C).

• Q4: Writing off bad debts results in: Dr. Bad Debts Expense | Cr. Accounts Receivable (A).

Accrual Concept and Year-End Adjustments

• Q5: The accrual concept states that revenues and expenses are recorded when they are earned or incurred, not when cash is exchanged (B).

• Q8: If rent of R5,000 is paid in advance, the correct journal entry is: Dr. Prepaid Rent R5,000 | Cr. Cash R5,000 (B).

Revision Activities and Examination Preparation

• Test 1 Schedule:

  • Covers Study Units 1–2, Chapters 1-5

  • Date: March 10, 2025

  • Duration: 30 mins, 15 marks

  • Format: Open book, multiple choice, and fill in calculations

• Study Resources: Various links to further review materials are provided including quizzes and summaries that contribute to exam preparation.