McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 1 Accounting and Business

1-2 Bell Ringer……… 1.What is the accounting equation 2.What is the equation for a net gain or a net loss Get out your homework

1-3 Essential Questions 1.What makes information useful? 2.Why do financial statements exist?

1-4 Students will be able to: Identify and describe the purpose of the information provided in each financial statement. Explain how the statements articulate with each other. Classify basic elements of accounting with the respective financial statement. Explain the role of management and the auditor in preparing and issuing an annual report.

1-5 What Makes Information Useful? Relevance  Capable of making a difference in a decision Reliability  Dependable Benefits > Costs  Benefits derived must be greater than cost Materiality  Large enough to have an impact on a decision

1-6 What is the purpose of financial statements? Stakeholders -  People or other business entities who have invested in companies  Use financial statements to determine if they should invest in the companies.

1-7 What are the 4 Basic Financial Statements and Auditors’ Report? Income statement – “P&L”  Indicates revenues less expenses = net income for a period of time Statement of cash flows  Indicates cash inflows and outflows from operating, investing, and financing activities for a period of time (Cash basis). Statement of owners’ equity  Indicates changes in owners’ equity for a period of time

1-8 Financial Statements Continued Balance sheet  Indicates the ending balances of assets, liabilities, and owners’ equity at a point in time  The Accounting Equation: ASSETS = LIABILITIES + OWNER’S EQUITY  Assets and Liabilities are separated in 2 categories : Current and Non-Current

Financial Statements Continued – Balance Sheet - Assets Current – Those that benefit < less than 1 year. Examples: Cash, Accounts Receivable, Inventory Non – Current – Those with value or benefits > greater than 1 year. Examples: Property, Plant and Equipment, Goodwill, Intangibles 1-9

Financial Statements Continued – Balance Sheet - Liabilities Current – Obligations paid or released within < one year. Examples: Accounts Payable, Accrued Expenses, Notes Payable < 1 year. Non – Current – Obligations paid or released > more than one year. Examples: Notes Payable due > 1 year. 1-10

Lecture Examples 2.Describe each of the following items and determine which financial statement it appears on. Accounts payable, $136Building, $809 Accounts receivable, $876Patent, $2 Cash received from customers, $13,074Long-term bank loan, $716 Cash paid for inventory, $8,338Common stock, $3,827 Cash paid to employees, $1,724Retained earnings, $373 Cost of goods sold, $8,192Cash balance, $2,211 Inventory, $908Miscellaneous payables, $529 Miscellaneous operating expenses, $3,686 Sales, $13,353 Wage expense, $1,750

1-12 Financial Statements Continued Auditor’s report  Indicates whether the company followed GAAP when preparing its financial statements 1.Independence of auditor 2.Opinion on financial statements 3.Responsibilities of Management.

1-13 Students will be able to: Identify and describe the purpose of the information provided in each financial statement. Explain how the statements articulate with each other. Classify basic elements of accounting with the respective financial statement. Explain the role of management and the auditor in preparing and issuing an annual report.

HOMEWORK……. Complete P THANK YOU!!!!!!