Accounting Fundamentals: Financial Statements and Analysis

Accounting Fundamentals

Accounting is intended to help companies make decisions, whether public or private, based on the information provided. This process summarizes the financial data of an entity. The most relevant functions are:

• Identify economic facts.
• Assessment: Measurement of statements in monetary units (€).
• Annotation: Recording of events.
• Reporting: Preparation of financial statements for decision-making.

Heritage and Equity

Heritage: A set of quantifiable assets, rights, and obligations belonging to a person or entity.

• Merchandise: Assets used to immediately meet a need.
• Rights: A set of credits for an individual or legal entity.
• Obligations: All debts the company has contracted with third parties.

Formula: Assets + Rights - Liabilities = Net Equity

Heritage Masses

A set of assets that are homogeneous, meaning they have the same economic or financial significance. This includes assets and liabilities.

Accounting Equity

The instrument of representation for the patrimonial part. It reflects the initial situation and changes over the year.

Profit and Loss Account

Quantifies business income and describes its formation. It comprises, with due separation, income and expenditure for the year, and the resulting profit or loss of the financial year.

Balance Sheet Analysis

Performed to evaluate the structure, current situation, and future trends. It requires analyzing the sources of financing (liabilities) and their application to reality.

Financial and Economic Analysis

• Financial Analysis: The objective is to determine if the company has sufficient funds for normal development and if they are adequately distributed.
• Economic Analysis: Deals with analyzing the profitability of the company by comparing results from the Profit and Loss Account against assets and net equity.

Working Capital

The portion of assets financed by long-term resources, also called the maneuver fund.

Formula: Working Capital = Fixed Liabilities - Fixed Assets

Balance Sheet Structure

Derived from comparing the pools of assets that make up the financial structure against the economic structure. From an accounting point of view: Assets = Liabilities + Equity.

• Assets: The set of goods and rights that a company owns.
• Liabilities: The debts of the company and its own funding sources.

Discount Calculation

Discount = Nominal Capital × Interest Rate × Time