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0:00
Welcome to this HSTalks series
on Analyzing Financial Statements.
My name is Dr. David Bond.
0:08
For those who aren't familiar
with cricket,
this is an image
from a cricket test match
at the Lord's Ground in London.
Why am I showing you a picture
of a cricket match
you're probably asking?
Well, the reason is that test matches
can last five days
with six hours of play each day.
Now as much as I'd like to,
I can't spend
that sort of time watching it.
So to find out
how the match is going,
I just check out the scoreboard.
And whoa,
there's a lot going on there.
The thing is because I grew up
around cricket,
I can understand
what's going on here quickly,
and that's because I can understand
the language of cricket,
which brings me nicely and neatly
to accounting, pretty smooth segue.
Accounting is the language of business.
As much as that is a cliché,
it's also true.
Accounting allows business owners,
large and small,
to understand how they're performing,
what's working well,
what's not working well,
and to make strategic decisions.
Knowing how accounting works
and how to read accounting reports
is a critical skill
for anyone in business,
whether as a CEO
of a large multinational
or a founder of a startup,
it can even be useful
in your personal life.
1:16
Accounting, as a subject,
is typically split into
two primary types,
financial, and management.
Financial accounting is concerned
with how entities prepare
financial statements,
like the income statement,
or external uses,
i.e., shareholders.
Management accounting is concerned
with how entities prepare reports
like budgets for internal users,
i.e., management.
1:40
The key differences between
financial and management accounting
are as follows.
The intended user
for financial accounting
is external to the entity,
whilst for management accounting,
the intended user is internal.
The time period
for financial accounting is historical.
By this, I mean
that financial reporting statements
are constructed based on events
which have already happened.
Management accounting
is generally the opposite
in that management accounting reports
are interested in the future
and what may happen.
Lastly, standardization,
financial accounting
is heavily regulated and standardized
as will be discussed shortly.
Management accounting reports
are only used within the entity,
so the entity and its management
are free to choose
how they construct these.
The focus of this series
is primarily on financial accounting
or, as I'll refer to it from now,
financial reporting.
