Advance Financial Accounts Innovation
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Wikipedia
Financial accountancy is governed by both local and international accounting standards. Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting used in any given jurisdiction. It includes the standards, conventions and rules that accountants follow in recording and summarizing and in the preparation of financial statements.
On the other hand, International Financial Reporting Standards (IFRS) is a set of accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board (IASB). With IFRS becoming more widespread on the international scene, consistency in financial reporting has become more prevalent between global organizations.
While financial accounting is used to prepare accounting information for people outside the organization or not involved in the day-to-day running of the company, managerial accounting provides accounting information to help managers make decisions to manage the business.
Founded in 1996, Advance Financial is a fintech company based in Nashville, Tennessee. Advance Financial provides lending decisions on cash loans and other financial services. It employs over 1100 employees and in 2019 was named to the Inc.com 5000 list of the fastest-growing private companies in the country for the eighth year in a row.
Advance Financial is a member of several trade organizations including Community Financial Services Association of America, Financial Service Centers of America where the founders, Mike & Tina Hodges serve on the board of directors and Online Lenders Alliance.
Financial accounting and financial reporting are often used as synonyms.
1. According to International Financial Reporting Standards: the objective of financial reporting is:
To provide financial information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the reporting entity.
2. According to the European Accounting Association:
Capital maintenance is a competing objective of financial reporting.
Financial accounting is the preparation of financial statements that can be consumed by the public and the relevant stakeholders. Financial information would be useful to users if such qualitative characteristics are present. When producing financial statements, the following must comply: Fundamental Qualitative Characteristics:
- Relevance: Relevance is the capacity of the financial information to influence the decision of its users. The ingredients of relevance are the predictive value and confirmatory value. Materiality is a sub-quality of relevance. Information is considered material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.
- Faithful Representation: Faithful representation means that the actual effects of the transactions shall be properly accounted for and reported in the financial statements. The words and numbers must match what really happened in the transaction. The ingredients of faithful representation are completeness, neutrality and free from error.
Enhancing Qualitative Characteristics:
- Verifiability: Verifiability implies consensus between the different knowledgeable and independent users of financial information. Such information must be supported by sufficient evidence to follow the principle of objectivity.
- Comparability: Comparability is the uniform application of accounting methods across entities in the same industry. The principle of consistency is under comparability. Consistency is the uniform application of accounting across points in time within an entity.
- Under stand ability: Under stand ability means that accounting reports should be expressed as clearly as possible and should be understood by those to whom the information is relevant.
- Timeliness: Timeliness implies that financial information must be presented to the users before a decision is to be made.
The statement of cash flows considers the inputs and outputs in concrete cash within a stated period. The general template of a cash flow statement is as follows: Cash Inflow – Cash Outflow + Opening Balance = Closing Balance
Example 1: in the beginning of September, Ellen started out with $5 in her bank account. During that same month, Ellen borrowed $20 from Tom. At the end of the month, Ellen bought a pair of shoes for $7. Ellen’s cash flow statement for the month of September looks like this:
- Cash inflow: $20
- Cash outflow:$7
- Opening balance: $5
- Closing balance: $20 – $7 + $5 = $18
Example 2: in the beginning of June, WikiTables, a company that buys and resells tables, sold 2 tables. They’d originally bought the tables for $25 each, and sold them at a price of $50 per table. The first table was paid out in cash however the second one was bought in credit terms. WikiTables’ cash flow statement for the month of June looks like this:
- Cash inflow: $50 – How much WikiTables received in cash for the first table. They didn’t receive cash for the second table (sold in credit terms).
- Cash outflow: $50 – How much they’d originally bought the 2 tables for.
- Opening balance: $0
- Closing balance: $50 – 2*$25 + $0 = $50–50=$0 – Indeed, the cash flow for the month of June for WikiTables amounts to $0 and not $50.
Important: the cash flow statement only considers the exchange of actual cash, and ignores what the person in question owes or is owed.
Example 1: in the beginning of September, Ellen started out with $5 in her bank account. During that same month, Ellen borrowed $20 from Tom. At the end of the month, Ellen bought a pair of shoes for $7. Ellen’s cash flow statement for the month of September looks like this:
- Cash inflow: $20
- Cash outflow:$7
- Opening balance: $5
- Closing balance: $20 – $7 + $5 = $18
Example 2: in the beginning of June, WikiTables, a company that buys and resells tables, sold 2 tables. They’d originally bought the tables for $25 each, and sold them at a price of $50 per table. The first table was paid out in cash however the second one was bought in credit terms. WikiTables’ cash flow statement for the month of June looks like this:
- Cash inflow: $50 – How much WikiTables received in cash for the first table. They didn’t receive cash for the second table (sold in credit terms).
- Cash outflow: $50 – How much they’d originally bought the 2 tables for.
- Opening balance: $0
- Closing balance: $50 – 2*$25 + $0 = $50–50=$0 – Indeed, the cash flow for the month of June for WikiTables amounts to $0 and not $50.
Important: the cash flow statement only considers the exchange of actual cash, and ignores what the person in question owes or is owed.
This statement is additional to the three main statements described above. It shows how the distribution of income and transfer of dividends affects the wealth of shareholders in the company. The concept of retained earnings means profits of previous years that are accumulated till current period. Basic proforma for this statement is as follows:
Retained earnings at the beginning of period
+ Net Income for the period
– Dividends
= Retained earnings at the end of period.
One of the basic principles in accounting is “The Measuring Unit principle”:
The unit of measure in accounting shall be the base money unit of the most relevant currency. This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements.
Historical Cost Accounting, i.e., financial capital maintenance in nominal monetary units, is based on the stable measuring unit assumption under which accountants simply assume that money, the monetary unit of measure, is perfectly stable in real value for the purpose of measuring (1) monetary items not inflation-indexed daily in terms of the Daily CPI and (2) constant real value non-monetary items not updated daily in terms of the Daily CPI during low and high inflation and deflation.