RECAP LECTURE 7 RECAP LECTURE 7 CAPITAL STRUCTURE

RECAP LECTURE 7

RECAP LECTURE 7 • CAPITAL STRUCTURE

RECAP LECTURE 7 SHARE FEATURES THAT AFFECT CAPITAL STRUCTURE • WHAT ARE THEY?

RECAP LECTURE 7 1. 2. 3. 4. OWNERSHIP RIGHTS REPAYMENT REQUIREMENTS CLAIM ON ASSETS CLAIM ON PROFITS

RECAP LECTURE 7 • WHAT ARE THE INTERNAL FACTORS THAT AFFECT CAPITAL STRUCTURE? • WHAT ARE THE EXTERNAL FACTORS THAT AFFECT CAPITAL STRUCTURE?

A REVIEW OF FINANCIAL ACCOUNTING • ACCOUNTING IS OFTEN SAID TO BE THE LANGUAGE OF BUSINESS. • IT IS USED IN BUSINESS WORLD TO DESCRIBE THE TRANSACTIONS ENTERED INTO BY ALL KINDS OF ORGANIZATIONS. • ACCOUNTING TERMS AND IDEAS ARE THEREFORE USED BY PEOPLE ASSOCIATED WITH BUSINESS, WHETHER THEY ARE MANAGERS, OWNERS, INVESTORS, BANKERS, LAWYERS OR ACCOUNTANTS

A REVIEW OF FINANCIAL ACCOUNTING • FINANCIAL ACCOUNTING IS A SYSTEM OF KEEPING BUSINESS RECORDS SO AS TO EXPLAIN WHAT IS HAPPENING IN THE BUSINESS • IN THIS LECTURE WE WILL REVIEW THE BASIC PRINCIPLES AND STRUCTURE OF FINANVIAL ACCOUNTING

A REVIEW OF FINANCIAL ACCOUNTING • THE FIELD OF ACCOUNTING CAN BE DIVIDED INTO FOUR MAJOR AREAS: 1. 2. 3. 4. FINANCIAL ACCOUNTING MANAGEMENT / MANAGERIAL ACCOUNTING COST ACCOUNTING AUDITING

A REVIEW OF FINANCIAL ACCOUNTING • RECORDING TRANSACTIONS AND PREPARING REPORTS AND FINANCIAL STATEMENTS THAT CAN BE USED BY MANAGEMENT, OWNERS, CREDITORS, GOVERNMENT AGENCIES, AND OTHERS TO UNDERSTAND WHAT IS HAPPENING IN THE BUSINESS OR NON-PROFIT ORGANIZATION

A REVIEW OF FINANCIAL ACCOUNTING MANAGEMENT/MANAGERIAL ACCOUNTING • ALSO CALLED BUDGETING, THIS INVOLVES PLANNING FOR THE FUTURE. ACCOUNTING DATA ARE PREPARED ON AN EXPECTED OR PRO FORMA BASIS, THAT IS THE FIRM IS FORECASTING BUSINESS ACTIVITY

A REVIEW OF FINANCIAL ACCOUNTING COST ACCOUNTING • THIS AREA COVERS TECHNIQUES FOR DETERMINING THE COSTS OF A BUSINEE AND DEVELOPING METHODS FOR CONTROLLING THOSE COSTS. • PARTICULAR ATTENTION IS GIVEN TO COMPUTING THE COST OF AN INDIVIDUAL PRODUCT OR SERVICE IN SITUATIONS WHERE THOUSANDS OF SUCH PRODUCTS OR SERVICES ARE SOLD

A REVIEW OF FINANCIAL ACCOUNTING COST ACCOUNTING • EXAMPLE: TOYOTA MOTOR COMPANY WANTS TO MANUFACTURE A NEW CAR, IT MUST INCUR LARGE CAPITAL COSTS IN ADVANCE, TRAIN THOUSANDS OF WORKERS ON A NEW ASSEMBLY LINE, STOCK MILLIONS OF COMPONENTS AND PARTS AND FINALLY BEGIN PRODUCTION. • WHAT DOES IT COST TO PRODUCE THE FIRST CAR? • THESE QUESTIONS ARE ANSWERED IN THE AREA OF COST ACCOUNTING

A REVIEW OF FINANCIAL ACCOUNTING AUDITING • AN AUDIT MAY BE DEFINED AS AN EXAMINATION OF ACCOUNTING OR FINANCIAL RECORDS TO DETERMINE WHETHER A COMPANY, BANK OR OTHER ORGANIZATION IS MEETING CERTAIN RULES OR STANDARDS. • AUDITING IS THE FIELD THAT DEVELOPS STANDARDS FOR AUDITS AND PROVIDES THE PEOPLE TO CONDUCT AUDITS.

A REVIEW OF FINANCIAL ACCOUNTING AUDITING 1. INERNAL AUDITOR 2. EXTERNAL AUDITOR

A REVIEW OF FINANCIAL ACCOUNTING INTERNAL AUDITOR • AN AUDITOR MAY WORK FOR A COMPANY AND CONDUCT AN INTERNAL AUDIT, ENSURING THAT ESTABLISHED ACCOUNTING PROCEDURES AND MANAGEMENT INSTRUCTIONS ARE BEING FOLLOWED THROUGHT A COMPANY

A REVIEW OF FINANCIAL ACCOUNTING EXTERNAL AUDITORS • AN AUDITOR MAY WORK FOR AN OUTSIDE ACCOUNTING FIRM AND CONDUCT AN EXTERNAL AUDIT TO VERIFY ACCOUNTING AND FINANCIAL RECORDS TO CREDITORS, STOCKHOLDERS OR THE GOVERNMENT

A REVIEW OF FINANCIAL ACCOUNTING GENERALLY ACCEPTED ACCOUNTING PRINCIPLES GAAP • WHAT IS GAAP?

A REVIEW OF FINANCIAL ACCOUNTING GAAP • IS THE OVERALL BODY OF REGULATION ESTABLISHING HOW CAMPANY ACCOUNTS MUST BE PREPARED IN THE UK. THIS INCLUDES NOT ONLY ACCOUNTING STANDARDS BUT ALSO UK COMPANY LAW

A REVIEW OF FINANCIAL ACCOUNTING GAAP • A PRINCIPLE IS A FUNDAMENTAL LAW OR RULE UPON WHICH OTHER RULES AND PRACTICES ARE FORMED. • OVER THE YEARS, THE PROFESSION OF ACCOUNTING HAS DEVELOPED A NUMBER OF GAAP THAT MUST BE FOLLOWED IN RECORDING, TRANSACTIONS AND PREPARING FINANCIAL STATEMENTS.

A REVIEW OF FINANCIAL ACCOUNTING GAAP • THESE PRINCIPLES HAVE BEEN ACCEPTED BY PROFESSIONAL GROUPS SUCH AS AMERCIAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA), ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS (ACCA) • INSTITUTE OF CHARTERED ACCOUNTANTS ENGLAND & WALES (ICAEW), INSTITUTE OF CHARTERED ACCOUNTANTS PAKISTAN (ICAP)

A REVIEW OF FINANCIAL ACCOUNTING • SOME OF THE MOST IMPORTANT OF THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOLLOW: 1. BUSINESS ENTITY 2. GOING CONCERM 3. CONSISTENCY 4. MATERIALITY 5. PRUDENCE