We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byCristopher Fairbrother
Modified about 1 year ago
Financial Accounting © 2014 Pearson Education, Inc.15-1 chapter 15 Better Business 3rd Edition Solomon (Contributing Editor) · Poatsy · Martin
Accounting: What is it and who needs it? © 2014 Pearson Education, Inc. 15-2 What does accounting do? “Language” of business Record transactions Track income & expenses Prepare financial statements Helps answer and assist with important business decisions ManagersStockholders EmployeesCreditors What other groups would be interested in accounting information? Accounting is a system for recognizing, organizing, analyzing, and reporting information about the financial transactions that affect an organization?
Accounting: Who Does It? © 2014 Pearson Education, Inc. 15-3 Managerial accounting is responsible for tracking sales and the costs of producing the sales (production, marketing, and distribution). Geared towards INTERNAL users (hence name) Financial accounting produces financial documents to aid decision makers outside an organization in making decisions regarding investments and credibility. Geared towards OUTSIDE users (although internal users also rely heavily on financial accounting information) What Accountants Do: Public and Private Accountants Forensic Accountants Corporate Accountants Internal/External Auditors Government Accountants Accountants require expertise Certified Public Accountant (CPA) Certification 150-semester hours of college Rigorous Exam Direct Work Experience in accounting Certified Management Accountant (CMA) Certified Fraud Examiners
Accounting Standards & Processes © 2014 Pearson Education, Inc. 15-4 Generally Accepted Accounting Principles (GAAP) – accounting standards that are used in the preparation of financial statements Financial Accounting Standards Board (FASB) – private self-regulated board that establishes and enforces GAAP Through GAAP, the FASB aims to ensure that financial statements are: Relevant Reliable Consistent Comparable
The Accounting Process © 2014 Pearson Education, Inc.5 GAAP establishes two main financial accounting rules: The Accounting Equation Assets = Liabilities + Owner’s Equity Assets – The resources that a business own (ex. Cash, Accounts Receivable, Inventory, Equipment, and Real Estate/Land) Liabilities – The firm’s debts, what it owes others (ex. Accounts Payable and Notes Payable) Owner’s Equity – The difference between assets and liabilities (what would be left for the owners if the firm’s assets were sold and the money used to pay off its liabilities (ex. Retained Earnings, Stock) Double-Entry Bookkeeping System Each financial transaction is recorded as two separate accounting entries to maintain the balance of the accounting equation
The Accounting Process (cont.) © 2014 Pearson Education, Inc.15-6
The Accounting Equation © 2014 Pearson Education, Inc.7 Owner’s Equity (what’s left over to owner’s once liabilities are taken from assets), shown as: Assets = Liabilities + Owner’s Equity Own = Owed + Owner’s Claims Cash, Accounts Receivable, Inventory, Equipment, Real Estate Accounts Payable, Notes Payable Stock, Retained Earnings (cumulation of company’s profits and losses) $826,000 = $613,000 + $213,000 Assets – Liabilities = Owner’s Equity Accounting Equation:
Examples of the Accounting Equation © 2014 Pearson Education, Inc.15-8
Financial Statements: Read All About Us © 2014 Pearson Education, Inc.9 Financial accounting includes three basic financial statements: Balance Sheet Income Statement Statement of Cash Flows Corporations with publicly held stock must publish annual reports with all three statements.
The Balance Sheet © 2014 Pearson Education, Inc. 10 Assets = Liabilities + Owner’s Equity Owner’s Equity – the claims owners have against their firm’s assets Balance Sheet – summarizes a firm’s financial position at a specific point in time Assets – things of value that the firm owns Liabilities – indicates what the firm owes to non-owners
Balance Sheet (cont.) AssetsLiabilities Current assets Current liabilities + Fixed assets + Long-term liabilities = Total Liabilities Owners’ Equity = Total Assets= Total Liabilities + Owners’ Equity © 2014 Pearson Education, Inc. 15-11 Assets Listed in order of liquidity (ease with which an asset can be converted into cash) Current assets—can quickly be converted into cash or that will be used in one year or less Cash, accounts receivable, notes receivable, and merchandise inventory Fixed assets—will be held or used for a period longer than one year Real estate (Land and buildings), and equipment Depreciation—the process of apportioning the cost of a fixed asset over the period during which it will be used Liabilities Current liabilities—debts to be repaid in one year or less Accounts payable—short-term obligations that arise as a result of making credit purchases Notes payable—obligations that have been secured with promissory notes Long-term liabilities—debts that need not be repaid for at least one year Owners’ or stockholders’ equity Retained earnings—profits not distributed to stockholders
Balance Sheet Example © 2014 Pearson Education, Inc. 15-12
Analyzing a Balance Sheet with Some Financial Ratios Working Capital = Current Assets – Current Liabilities Current Ratio = Current Assets ÷ Current Liabilities Debt-to-Equity Ratio = Total Liabilities ÷ Owners’ Equity © 2014 Pearson Education, Inc. 15-13
The Income Statement (aka P&L Statement) © 2014 Pearson Education, Inc. 14 Revenue – Expenses = Net Income (Profit) Revenues > Expenses = Net Income (Profit) Expenses > Revenue = Loss Net Income (Profit) – the profit or loss the firm earns Income Statement – summarizes a firm’s operations over a given period of time in terms of profit and loss. Also called the Profit and Loss Statement Revenue– The $ amount a firm earns from selling its products Expenses – the cash the firm spends or other assets it uses to generate revenue
The Income Statement Outline Revenue (Sales Price * Quantity Sold) –Cost of Goods Sold (Beginning Inventory + Purchases - Ending Inventory) = Gross Profit –Operating Expenses = Net Income Before Taxes –Tax Expense = Net Income After Taxes © 2014 Pearson Education, Inc. 15-15 What does the Income Statement Tell Us? Revenue is the amount of money generated by a business by either selling goods or performing services. It is calculated as Sales Price * Quantity Sold. Cost of Goods Sold are the variable expenses a company incurs to manufacture and sell a product, including the price of raw materials used in creating the good along with the labor costs used to produce and sell the items. To get COGS, you will take the Beginning Inventory balance, add in Purchases to inventory for that period, and Subtract the Ending Inventory balance (when you close out period). Gross profit tells you how much money a company makes just from its products and how efficiently management controls costs in the production process. Operating expenses include sales, general, and administrative expenses. These costs may consist of items such as rent, salaries, wages, utilities, depreciation, and insurance. Net Income Before Taxes tells us how much income (profit) is available to owners prior to paying taxes. Remember, in order to pay taxes, a business must show a profit. Otherwise they don’t owe any taxes. Taxes paid are subtracted to determine net income (or net income after taxes). Net Income After Taxes is the “bottom line” and is usually stated on the very last line of an income statement.
Income Statement Example © 2014 Pearson Education, Inc.15-16
Analyzing Income Statements with Financial Ratios © 2014 Pearson Education, Inc. 15-17 Gross Profit Margin = (Revenue – COGS) / Revenue Operating profit margin = (Gross Profit – Operating Expenses) / Revenue Earnings Per Share = Net Income / Outstanding Shares
© 2014 Pearson Education, Inc. 15-18
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Understanding Accounting and Financial Information CHAPTER 17.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 15 | Slide 1 Using Accounting Information Chapter15.
Accounting: Decision Making by the Numbers
How to read a FINANCIAL REPORT. Components of an Annual Report 1. Letter to Shareholders- gives a broad overview of the company’s business and financial.
McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter 1717 Understanding Financial Information.
Chapter Eighteen Using Accounting Information. Copyright © Houghton Mifflin Company. All rights reserved.18 | 2 Learning Objectives 1.Explain why accounting.
Part 6 Financing the Enterprise © 2015 McGraw-Hill Education.
Using Accounting Information Why Accounting Information is Important: Accounting information is management information Managers, employees, lenders, suppliers,
Chapter Fourteen Accounting: Measuring how Efficiently and Effectively Resources Are Creating Value and Profit © 2007 The McGraw-Hill Companies, Inc.,
Chapter Eighteen Using Accounting Information. Key Statements Three key financial statements summarize the firm’s activities for a specific period Balance.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 15-1 # Copyright © 2015 Pearson Education, Inc. The Role of Accountants and Accounting.
Accounting and Financial Management Chapters 17 and 18 BCEN 1400.
Chapter 1 Accounting and the Business Environment.
Lecture 28. Chapter 17 Understanding the Principles of Accounting.
Business in Action 7e Bovée/Thill. Financial Information and Accounting Concepts Chapter 17.
Chapter Eighteen Using Accounting Information. Copyright © Houghton Mifflin Company. All rights reserved Learning Objectives 1.Explain how new.
Foundations of Business 3e Pride, Hughes, & Kapoor.
Business Essentials 9e Ebert/Griffin The Role of Accountants and Accounting Information chapter fourteen.
© 2001 Prentice Hall Business Publishing Financial Accounting, 4/e Harrison & Horngren 1-1 CHAPTER 1 The Financial Statements.
PRE-PARED BY: AZHAR AHMED 1-1 CHAPTER 4 The Financial Statements.
上海金融学院 1-1 Lecture 3 Investment Banking Basics: The Financial Statements.
WEEK 12: ACCOUNTING CONCEPTS BUSN 102 – Özge Can.
Part Chapter © 2009 The McGraw-Hill Companies, Inc. All rights reserved. 1 McGraw-Hill Understanding Financial Information and Accounting 1 Chapter 12.
Chapter 3- Accounting and Financial Statements Pr. SAMLAL Zoubida.
McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Sixteen Understanding Accounting & Financial Statements.
Accounting Role of Accounting in Business Exploring Business Chapter 12 Thursday 9/8/11.
CHAPTER 8: ACCOUNTING DECISION MAKING BY THE NUMBERS.
1-1 Accounting Basics Prepared/Edited by Nita S. Edwards, CPA.
Chapter 3. Understanding Financial Statements and Cash Flows.
Financial Reporting and Analysis – Chapter 4 Financial & Managerial Accounting, 8th Edition by Needles, Powers, Crosson.
Seventh Edition Copyright © by Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook 18 Pride I Hughes I Kapoor Chapter.
Chapter Seventeen Using Accounting Information. Copyright © Cengage Learning. All rights reserved. Learning Objectives 1.Explain why accounting information.
Using Financial Information and Accounting Chapter 19.
Chapter 16 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Using Financial Information and Accounting Prepared by Norm Althouse.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 1 Business Decisions and Financial Reporting.
Published by Flat World Knowledge, Inc. © 2014 by Flat World Knowledge, Inc. All rights reserved. Your use of this work is subject to the License Agreement.
Accounting: Measuring how Efficiently and Effectively Resources are Creating Value and Profit © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Financial Statements and Business Decisions Chapter 1 McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, Inc.
Using Financial Information and Accounting Chapter 14.
Chapter 1 The Basic Financial Statements. Groups 1.Get Contact Information for each group member – you are stuck with each other for the next 15 weeks.
Chapter 36 Financing the Business 1 Marketing Essentials Chapter 36 Financing the Business Section 36.2 Financial Aspects of a Business Plan.
The Role Of Accounting In Business. Chapter Objectives 1.Define accounting and identify uses of its information 2.Understand the three basic financial.
Warren Reeve Duchac Financial Accounting 14e Introduction to Accounting and Business 1 C H A P T E R human/iStock/360/Getty Images.
Chapter 1 The Role of Accounting in Starting a Business © 2009 The McGraw-Hill Companies, Inc.
1 16. Understanding Accounting & Financial Statements.
© 2017 SlidePlayer.com Inc. All rights reserved.