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Financial Accounting provides information to external users:

• Measure business activities

• Communicate measurements to external parties (Report)

• Based on formal standards to facilitate comparability (Gnera

  • International Accounting Standarxs Board (IASB) ⇒ Develop International Financial Reporting Standards (IFRS)

  • In Singapore, we either follow Singapore Financial Reporting Standards and IFRS (generally for multi-national companies)

Efficient Capital market

• High level of assurance that money is well taken care of

• Have auditors - increases credibility

More capital flows - so that every one

Business structures

1) Corporation/Company - separate legal entity that distributes shares to others

• Company owns the business, and the original

• SE will have limited liability -> risk transference

• When you separate person and business, you can scale your business + attract investors

Individual tax is cheaper at first, but after a threshold, corporate tax is cheaper

2) Partnership - business owned by two or more person

3) Sole proprietorship - business owned by one person

• Most natural way to start up

Business Activities

1) Financing: where and how the company obtains its money

2) Investing: Assets and Resources that can produce future revenue for the company

3) Operating:

• Depends on the purpose of the item, the business activity category is different

• Cash collected is under this section

• Primary Operations + Secondary Operations

Ie. Car can be classified into two different activities

1) Investing - If the car is bought, then repackaged and sold as a product. The car here is then considered an asset

2) Operating - If the car is used as a transporter for goods/people, then it is an operations

Mother of All Formulas (in Accounting)

$\text{Assets = Liabilities + Stockholders Equity}$

Assets = Resources of company (Monetary, Physical)

Libilities = Creditors/Loanshark claims to resources

Stockholders Equity = Owner's claims to resources (shares)

Invest vs Lend

Invest -> gave money, no strings

Lend -> Creditor

Revenues = recognising value of the product sells and services provided to the customer

Cash payment (Settlement) and Revenue Recognition is independent 2 Different models 1) Service before Payment (ie Car Wash) 2) Payment before Service (ie. Hair Salon Packages, School fees)

Expenses = cost of providing products and services and other business activities

• cash is NOT paid.

• incurred a cost total salaries of employees for the company to provide services

Net Income = Revenue - Expense

Dividends = is not a expense, but a distribution to stockholders.

Financial Statements

• Periodic reports published by company

  • Apart from the financial statements, there are MD&A and Note disclosures

    • MD&A

      • Management's view on significant event, trends and uncertainties

    • Note disclosures

      • Offer additional information to explain the costs incurred/gained

4 Primary Financial

1) Income Statement (Statement of Comprehensive Income)

• Top 3 rows are most important

  • Name of Company

  • What statement

  • Date [For the month ended 31 December, 2025]

    • Means that its for the month of december

• If revenue > expenses -> net income

• revenue < expense -> net loss

• "Company provided XXX worth of services from 1-31 December"

• "In order for Company to provide XXX worth of service in the XXX, it has to incur a cost of labor expenses of XXX"

  • ⭐ Expenses must be linked to the revenues

2) Statement of stockholders' equity

• Summarizes the changes from the start to the end

• Stockholders' Equity

  • Common Stock (Shares) + Retained Earning

  • External Source + Internal Source ⇒ derives Company Value (on Paper)

• Rows are events, Columns are values

3) Balance Sheet

• Financial Position(Snapshot) of the company on a particular date

Payable ⇒ to pay in the future

4) Statement of Cash Flows

• Measures cash receipts and cash payments over an interval of time

Auditors

• Trained to express a professional opinion on the prepared financial statements are in compliance with the IFRs and not misstatement

  • Add credibility

Conceptual Framework

• Why are we reporting this number? ⇒ Decision Usefulness

  • If a financial numbers are the following, they need to be reported:

    • Relevant

      • Has confirmatory (confirm past value of service) + predict something in the future (predictive value of service)

    • Materiality

      • Importance - impacts user's decision-making

      • No proper threshold - who determines user impact?

    • Faithfully represented

      • Completeness ⇒ Adequate information,

        • If not enough information ; will wait for complete information

      • Neutrality ⇒ Free from bias

        • If they have a Pre-determined outcome (fundraising targets, setting baseline)

      • Free from error =>

        • No interns for work!

        • Process must be properly govern to ensure the fidality of the data

  • Add ons:

    • Comparability

    • Verifiability

      • Disclose best estimate, let market discuss

      • Can disclose information that is not verifiable

    • Timeliness

    • Understandability

      • Assume a certain profile that users are able to understand the information within the context of the decision.

Assumptions (??)

• Going concern

• Accrual Accounting